Taxable Vs. Tax-deferred Investment Growth Calculator
Compare the future value and investment return differences between taxable and tax deferred investing. This calculator will help you decide if the tax deferral benefit justifies the additional rules and government limitations.
Taxable Vs. Tax-Deferred Investment Growth
The difference between taxable vs. tax-deferred investment growth can be substantial, but it can also be difficult to quantify without a calculator.
The mathematical reality is tax deferral will help you achieve your retirement goals more quickly, but there is a price to pay in terms of government regulation and sometimes higher fees associated with tax-deferred investing. You must weigh the growth benefits of tax-deferred investing against these costs to decide the best tax structure for achieving your financial goals.
Fortunately, this Taxable vs. Tax-Deferred Calculator makes the math easy so you can quickly find the right answer.
Below is analysis of each investment choice to help you make the decision…
Earned income is taxable every year, but exceptions exist. Taxable investment income includes:
Most investment income is treated as ordinary income – taxed at your current tax rate. Gains on sales of long-term assets – held for more than a year – are generally taxed at the advantageous long-term capital gains rate.
Most tax-deferred investments reside in retirement accounts. Tax-deferred investments only pay taxes when investments are liquidated or sold.
Some equity investments, like stocks, can be considered tax-deferred investments. Although you may pay taxes on dividends, you will not pay taxes on market gains until sold.
Traditional retirement accounts are tax-deferred. Some government savings bonds also allow you to pay taxes on interest earned or defer tax payments until the bonds mature.
Taxable Investment Advantages
Surprisingly, there are advantages to taxable investments that must be considered when formulating your investment plan:
Remember: Retirement accounts have additional regulations – consult a financial expert.
Deferred-Tax Investment Advantages
Tax-deferred investing delays income taxes on investments until you withdraw money resulting in the following advantages:
Always remember that the value of your tax deferral is determined by your tax bracket. Similarly, if you believe you might fall into a higher tax bracket later then it might make sense to pay the the taxes now rather than defer them to a higher tax bracket later.
Before deciding, compare investment options using the Taxable vs. Tax-Deferred Investment Growth Calculator. It will tell you which strategy provides the best future value?
Whichever account you choose, remember that you will still be paying taxes. Don’t put off taxes simply because you prefer to live lavishly now. Likewise, don’t pay taxes now in the midst of a dire financial situation. Make your decision using math – not emotion.
Regardless of the tax implications you should make sure to maximize contributions now to secure your retirement later.
Contribute early and often so you can watch your savings grow!
Taxable Vs. Deferred Tax Savings Terms & Definitions
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Taxable vs Tax Deferred Calculator
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