Roth IRA Gains Calculator
Quantify how much your Roth IRA saves you by sheltering capital gains from taxes. Compare the after-tax value of identical portfolios inside a Roth IRA versus a taxable brokerage account.
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Roth IRA vs Taxable Account at Liquidation
Capital Gains Growth Over Time
Understanding Tax Drag on Investment Returns
Tax drag is the silent killer of investment returns in taxable accounts. Every year, when your fund distributes dividends or realizes capital gains through rebalancing, you owe taxes on those distributions — even if you reinvest every penny. Over 20–30 years, this annual tax bite can reduce your effective returns by 1.5–2.5% per year, costing you hundreds of thousands of dollars compared to a tax-sheltered Roth IRA.
Consider a simple example: a $100,000 investment earning 10% annually for 30 years. In a Roth IRA, it grows to $1,744,940 — completely tax-free. In a taxable account with 2% annual distributions taxed at 20%, the effective return drops to roughly 9.6%, yielding $1,574,460 before any final capital gains tax. After selling and paying the remaining capital gains tax, you might net only $1,376,840. That is a $368,100 gap — and that money stays in your pocket with a Roth IRA.
Annual Dividend Tax
Fund distributions create taxable events every year, even without selling. Index funds distribute 1–2% in dividends annually.
Rebalancing Tax Cost
Selling winners to rebalance your portfolio triggers capital gains. In a Roth IRA, rebalancing is completely tax-free.
Final Liquidation Tax
When you sell everything in a taxable account to fund retirement, you owe capital gains on the entire appreciation above your cost basis.
2025 Federal Capital Gains Tax Brackets
Your capital gains tax rate depends on your taxable income and filing status. Understanding where you fall helps you quantify the tax savings a Roth IRA provides.
| Rate | Single | Married Filing Jointly |
|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 |
| 15% | $48,351 – $533,400 | $96,701 – $600,050 |
| 20% | Over $533,400 | Over $600,050 |
| +3.8% NIIT | Over $200,000 MAGI | Over $250,000 MAGI |
In a Roth IRA, all of these rates are 0%. That is the power of tax-free growth.
Frequently Asked Questions
Common questions about capital gains taxes and how a Roth IRA eliminates them.
Short-term capital gains (assets held less than 1 year) are taxed as ordinary income at your marginal rate (10–37%). Long-term gains (held over 1 year) are taxed at preferential rates of 0%, 15%, or 20% depending on your income. Additionally, high earners may owe a 3.8% Net Investment Income Tax.
No. Capital gains within a Roth IRA are never taxed — not when you realize them inside the account by selling, and not when you withdraw the money in retirement (assuming you meet the 5-year rule and age 59½ requirement). This is the core benefit of the Roth structure.
Tax drag is the cumulative reduction in returns caused by annual tax payments on dividends and realized gains. Even in a buy-and-hold strategy, most funds distribute capital gains and dividends that are taxable each year. This can reduce effective returns by 1–2% annually over long periods.
Tax-loss harvesting allows you to sell losing positions to offset gains and reduce your tax bill. While this is a powerful strategy for taxable accounts, it is entirely unnecessary in a Roth IRA since there are no taxable events. The Roth eliminates the complexity of tracking cost basis and harvesting losses.
Most states tax capital gains as ordinary income. States like California (up to 13.3%), New York (up to 10.9%), and New Jersey (up to 10.75%) add significant additional tax burden. In a Roth IRA, you avoid all of these — both federal and state capital gains taxes on your investment growth.