Taxable Brokerage vs Roth IRA: The Same Investment, Different Tax Bill
You can hold the same stock or fund in two very different account types, and the tax bill on gains ends up wildly different. In a taxable brokerage account, profits held over a year are taxed at long-term capital gains rates, typically 0%, 15%, or 20% federally plus state tax. A Roth IRA works differently: you contribute already-taxed money, and qualified withdrawals, including all growth, are completely tax-free.
This calculator takes your principal and expected return, assumes both accounts earn the same gross profit, and applies your capital gains rate only to the taxable account. A Roth IRA almost always comes out ahead once any tax applies. The catch: annual contribution and income limits cap how much you can put in, and early withdrawals of earnings can trigger tax and a 10% penalty.
Frequently Asked Questions
Long-term gains are taxed at 0%, 15%, or 20% federally, depending on income, plus state tax.
You contribute after-tax dollars, so qualified withdrawals including all growth are untaxed.
Yes — annual contribution limits, income limits, and penalties on non-qualified early withdrawals.