Tax-aware investing
Three account types, one contribution: which leaves the most?
A three-way calculator that grows the same after-tax contributions in a taxable account, a tax-deferred account and a tax-free account, and compares what each leaves after tax.
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Which grows more: taxable, tax-deferred or tax-free accounts?
With the same after-tax contributions, a tax-free account like a Roth leaves the most, because neither growth nor withdrawals are taxed. Tax-deferred comes next, taxing gains once at withdrawal. Taxable accounts trail, losing part of each year's return to tax. The gaps widen with time, return and tax rates.
Planning the year's savings
Clients with access to several account types want a simple way to see the differences. It often comes up when setting the year's savings plan or after maxing out one type of account.
What the client types into a search box
“where should I put my savings for the best tax treatment”
How a client works through it
Enter investment and contributions
After-tax amounts going into each account type.
Set years and return
The same for all three.
Enter tax rates
Rate on taxable returns now and on deferred withdrawals.
Compare all three
After-tax values and the tax-free advantage.
What lands in your inbox
When a client asks your firm to review the result, the request arrives as a contact record with their inputs and results attached, by email and, on paid plans, by webhook to your CRM.
Received
Investment, contributions, years and rates show savings capacity and the client's view of future taxes. A client with most savings in one bucket may benefit from diversification planning.
Reading three after-tax values
Tax-Free (After Tax), Tax-Deferred (After Tax) and Taxable (After Tax) show what each account leaves. Tax-Free Advantage vs Taxable shows the largest gap. Total Contributions is the same for all.
The comparison assumes after-tax contributions; deductible contributions to traditional accounts change the picture, which the Roth vs. traditional calculator handles.
Results shown: Tax-Free (After Tax) · Tax-Deferred (After Tax) · Taxable (After Tax) · Tax-Free Advantage vs Taxable · Total Contributions.
The taxable account's effective rate
At a 7% return and a 24% tax rate on returns, the taxable account effectively grows at 7% × (1 − 0.24) = 5.32% a year, while the other two grow at the full 7% until withdrawal.
Why is tax diversification a firm conversation?
Having money in all three buckets gives flexibility to manage taxable income in retirement. The calculator illustrates why; the firm designs the mix and the withdrawal strategy.
It's equally useful for CPA firms and advisers, and a good topic for joint client events.
Follow-ups this request opens
- Plan contributions across account types
- Design a tax-efficient retirement withdrawal order
- Consider Roth conversions to build the tax-free bucket
- Review asset location
What this calculator leaves out
- After-tax contributions assumed for all three.
- Contribution limits and eligibility not enforced.
- Single tax rate on taxable returns.
- Fees and penalties not modeled.
Platform disclaimer shown under the calculator: Estimates only. Assumes after-tax contributions, taxes on the taxable account paid annually from returns, tax on the tax-deferred account's gains at withdrawal, and no tax on the tax-free account. Your situation may differ.
Compliance note for firms
Educational comparisons should not imply a particular product is best for a client without a full analysis. Advice on account choice is tax advice under Circular 230 §10.37 and planning advice for advisers.
Not legal advice. See our disclaimer and the guide to compliance for client calculators.
Terms your client sees in the calculator
These definitions appear in the calculator's collapsible Definitions block, so clients don't have to call to ask what a label means.
- Tax-free (Roth) account
- An account, such as a Roth IRA or Roth 401(k), funded with after-tax money where qualified withdrawals, including all the growth, are not taxed. This calculator assumes no tax at any point on the tax-free account, so its ending balance is also its after-tax value. Eligibility and qualified-withdrawal rules are not modeled.
- Tax-deferred account
- An account, such as a traditional IRA, 401(k) or annuity, where investment earnings are not taxed each year and instead are taxed when withdrawn. Here contributions are treated as after-tax money, so only the gains are taxed at withdrawal, at the rate you enter for that time.
- Taxable account
- An ordinary brokerage or savings account with no special tax treatment. Interest, dividends and realized gains are taxed as they occur. This calculator assumes the tax on each year’s return is paid out of that return at your current rate, which slows compounding compared with the other two accounts.
- Tax drag
- The reduction in growth caused by paying tax on returns every year instead of letting them compound. At a 7% return and a 24% tax rate, a taxable account effectively grows at about 5.3% a year. Over long periods this gap is why both sheltered accounts usually finish ahead of the taxable one.
- Marginal tax rate
- The rate that applies to your next dollar of income, which is the rate that matters for additional investment earnings. It is usually higher than your average (effective) rate. The calculator applies your current marginal rate to the taxable account’s return each year.
- Tax rate at withdrawal
- The rate you expect to pay on the tax-deferred account’s gains when you take the money out, often in retirement. It affects only the tax-deferred account. The higher it is, the further the tax-deferred result falls behind the tax-free one; since future rates are unknown, testing a few values is worthwhile.
In our glossary: Tax-deferred · Asset location
Taxable vs. Tax-Deferred vs. Tax-Free calculator: questions from firms and clients
Why does the tax-free account always win here?
Because contributions are after tax in every case, and only the tax-free account avoids tax on growth entirely.
Is this the same as Roth vs. traditional?
No. Traditional contributions are usually deductible; see the Roth vs. traditional calculator.
What is tax diversification?
Holding savings in different tax treatments to manage future taxes flexibly.
Do contribution limits apply?
Yes, but the calculator doesn't enforce them.
Are capital gains rates considered?
Only through the rate you enter.
What examples of tax-free accounts exist?
Roth IRAs and Roth 401(k)s; HSAs for qualified medical expenses.
Does time change the ranking?
Not the order, but the size of the gaps.
Which plan includes it?
Network. See pricing.
No question matches that filter. Clear it to see them all, search the whole site, or ask us directly; we reply within one business day.
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