Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The identical pre-tax return produces different after-tax outcomes depending entirely on the account it's held in and when gains get realized. A taxable account paying tax on gains and dividends along the way ends up with a different real return than the same investment sheltered in a tax-advantaged account, even with identical underlying performance.
Before you rely on it
What to check
Model the account type and the realized-tax timing separately, rather than applying one flat tax assumption to every kind of account.
The common error
Where people go wrong with after-tax investment return calculator
Comparing two investments' pre-tax returns as if the accounts holding them were identical. The tax treatment of the account can move the after-tax result more than a modest difference in the underlying pre-tax performance.
Sensitivity evidence
How annual gross return changes the estimated after-tax ending value
| Annual gross return | Estimated after-tax ending value | Estimated tax on gain | After-tax annualized return |
|---|---|---|---|
| 4.0% | $67,450 | $3,079 | 3.0% |
| 6.0% | $80,096 | $5,311 | 4.8% |
| 8.0%worked example | $95,094 | $7,958 | 6.6% |
| 10.0% | $112,825 | $11,087 | 8.5% |
| 12.0% | $133,723 | $14,775 | 10.3% |
Every input, tested
Which input moves the estimated after-tax ending value most
| Input | Tested from | To | Estimated after-tax ending value at each end | Swing |
|---|---|---|---|---|
| Holding period | 7.0 years | 13.0 years | $78,010 to $116,318 | $38,308 (40%) |
| Annual gross return | 6.0% | 10.0% | $80,096 to $112,825 | $32,729 (34%) |
| Starting investment | $45,000 | $55,000 | $85,584 to $104,603 | $19,019 (20%) |
| Annual investment fee | 0.250% | 0.750% | $97,152 to $93,078 | $4,074 (4.3%) |
| Tax rate on modeled gain | 13.0% | 17.0% | $96,155 to $94,033 | $2,122 (2.2%) |
Two variables at once
Estimated after-tax ending value by annual gross return and starting investment
| Annual gross return \ Starting investment | $40,000 | $50,000 | $60,000 |
|---|---|---|---|
| 4.0% | $53,960 | $67,450 | $80,941 |
| 6.0% | $64,077 | $80,096 | $96,115 |
| 8.0% | $76,075 | $95,094 | $114,113 |
| 10.0% | $90,260 | $112,825 | $135,390 |
| 12.0% | $106,978 | $133,723 | $160,467 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Starting investment | $50,000 |
| Annual gross return | 8.0% |
| Holding period | 10.0 years |
| Annual investment fee | 0.500% |
| Tax rate on modeled gain | 15.0% |
| Estimated after-tax ending value | $95,094 |
| Estimated tax on gain | $7,958 |
| After-tax annualized return | 6.6% |
Where the inputs come from
Starting investment and gross return describe the portfolio, and the holding period is how long you will hold it before selling. Annual investment fee is the total ongoing cost as a percentage. The tax rate applies to the gain when it is realized: for a taxable account in the US that is the long-term capital gains rate, commonly 15% for many households and 0% or 20% at the ends of the income range. Add state tax if it applies.
When the result stops applying
The model taxes the gain once at the end, which suits buy-and-hold but not funds that distribute gains every year, where tax is paid along the way and drags returns more. Dividends and interest are taxed differently from capital gains. Tax rates and brackets change, and the outcome differs in retirement accounts where the tax timing is different.
What to compare it with
See the investment fee drag and expense ratio pages for the fee side, and the tax-loss harvesting calculator for reducing the tax. The capital gains tax calculator estimates the bill on a specific sale. The mutual fund and ETF fee calculators use the same math from the fund's angle.
People also ask
Frequently asked questions
Which tax rate should I enter?
For stocks held over a year in a US taxable account, use your long-term capital gains rate, often 15%. Use your ordinary rate for short-term gains, which are taxed as income.
Is the return different inside an IRA?
Yes. In a traditional IRA the growth is not taxed until withdrawal, and in a Roth IRA qualified withdrawals are tax free, so the tax drag is delayed or removed.
Why is my after-tax return lower than the gross return?
Fees reduce the return every year and taxes take a share of the gain, and both compound against you over the holding period.