Most spendable at the goal date
Roth IRAWorth about $57,442 over 25 years on these assumptions.
SwitchWize decision guide
Roth IRA or taxable brokerage account: where should your next investable dollar go?
Both accounts can hold exactly the same investments, so this is not a question about what you buy. It is a question about the wrapper. The Roth pays no tax on growth but caps what you can put in and cuts off above an income limit. The brokerage account takes any amount from anyone and charges tax along the way. The gap between them is entirely tax drag, and it compounds.
What you can expect
- No login required
- No credit pull
- Assumptions shown
- Sources included
Quick answer
For money you will not touch until retirement, the Roth IRA wins on tax and it is not close. For money you may need sooner, or above the contribution cap, or above the income limit, the taxable brokerage account is not a consolation prize, it is the right tool.
If roth ira
Best for money you will genuinely leave alone until retirement, where decades of tax-free growth do their work.
If brokerage
Best for goals before retirement age, for amounts above the yearly cap, and for anyone whose income rules out a direct Roth contribution.
Key number to watch
Over 25 years the taxable account pays about $45,764 in tax on the same investments. That, not a better return, is the whole gap.
Test your situation
See your result in dollars
Change any number below to match your situation. No login is required, and your entries stay in this browser.
$
What you can realistically put in each year, not what you wish you could.
yrs
The whole comparison turns on this. Tax drag compounds.
$
Modified adjusted gross income. Above a limit, a direct Roth contribution is not allowed at all.
How you file
The income limit is far higher for joint filers.
Your answer so far
The Roth IRA leaves about $57,442 more to spend after 25 years, entirely because the taxable account pays tax along the way on the same investments.
See the full breakdownThe Roth IRA leaves about $57,442 more to spend after 25 years, entirely because the taxable account pays tax along the way on the same investments.
Roth IRA
$507,574
spendable after 25 years
Taxable brokerage account
$450,132
spendable after 25 years
-$57,442 vs. baseline
Try a scenario
What could change this
Over 25 years the taxable account pays about $45,764 in tax on the same investments. That, not a better return, is the whole gap.
How certain: moderate
For 2026, a single filer phases out between $150,000 and $165,000 of income.
How certain: high
What matters most
Getting at the money before retirement
BrokerageA taxable account has no age rules at all. Roth contributions come back any time; Roth earnings generally do not, before 59½.
Room to take the whole contribution
tieThis contribution fits inside the Roth limit, so the cap is not a factor.
Side-by-side comparison
Tax on growth
This single row causes the entire gap.
- Roth IRA
- None on a qualified withdrawal
- Brokerage
- Every year on distributions and realised gains, then again at sale
Yearly contribution limit
- Roth IRA
- Capped, and higher from age 50
- Brokerage
- None
Income limit
- Roth IRA
- Phases out, then disallowed entirely
- Brokerage
- None
Getting at the money early
The most common reason to choose the taxable account on purpose.
- Roth IRA
- Contributions any time; earnings generally taxed and penalised before 59½
- Brokerage
- Any time, no age rules
Where it wins
- Roth IRA
- Long horizons and high tax drag
- Brokerage
- Short horizons, large amounts, high income
What could go wrong
Roth IRA
- What needs to work
- You genuinely leave the money alone until retirement, and your income stays under the limit in the years you contribute.
- Common problem
- Needing the money early and taking earnings out, which triggers tax and a penalty on exactly the growth the account existed to protect.
- What it could cost
- Tax plus penalty on the earnings, on money you thought was yours to take.
- How to prepare
- Contributions come back any time without tax or penalty. Earnings are the part that does not.
Taxable brokerage account
- What needs to work
- You hold long enough, and turn over little enough, that the annual drag stays small.
- Common problem
- Trading often inside a taxable account, which realises gains every year and hands the compounding to the tax authority.
- What it could cost
- Decades of drag on the same investments the Roth would have sheltered entirely.
- How to prepare
- Not reversible: tax already paid does not come back. Future drag can be reduced by trading less.
A simple backup plan
Fill the Roth, then use the brokerage for the rest
For anyone investing more than the yearly cap, this is not a compromise. It is what the accounts are for.
- 1Check whether your income allows a direct Roth contribution at all this year.
- 2Contribute up to the yearly cap, which is higher from age 50.
- 3Put anything above the cap into the taxable brokerage account.
- 4Keep money you may need before 59½ in the taxable account on purpose, not by accident.
- 5Hold low-turnover funds in the taxable account, since realised gains are what the drag is made of.
Educational illustration only. The right amount depends on your needs and timing.
What to do next
Question 1
Does your income allow a direct Roth contribution?
Yes: Fill the Roth first.
No: Use the taxable account; ask a tax professional whether a backdoor Roth fits your situation.
Question 2
Will you leave this money alone until 59½?
Yes: The Roth's tax-free growth is worth the age restriction.
No: Use the taxable account, where there are no age rules at all.
Question 3
Are you investing more than the yearly cap?
Yes: Do both: fill the Roth, then the brokerage.
No: The Roth alone is enough.
Plain-text decision tree. Does your income allow a direct Roth contribution? If yes, Fill the Roth first. If no, Use the taxable account; ask a tax professional whether a backdoor Roth fits your situation. Will you leave this money alone until 59½? If yes, The Roth's tax-free growth is worth the age restriction. If no, Use the taxable account, where there are no age rules at all. Are you investing more than the yearly cap? If yes, Do both: fill the Roth, then the brokerage. If no, The Roth alone is enough.
When to check again
- The IRS publishes new contribution and income limits, which happens annually.
- Your income moves near or past the phase-out band.
- Your goal date moves earlier than 59½.
- You change how often you trade, which changes the drag.
Methodology
Both accounts receive the same contribution at the start of each year and earn the same return. The taxable account is taxed each year on dividends and on the share of appreciation you realise, with basis increased by both so the same dollar is not taxed twice, and taxed once more at the end on whatever gain is still unrealised. The Roth pays no tax on a qualified withdrawal.
Contribution limits and income phase-out bands come from the IRS figures for the selected tax year. Return, dividend yield, turnover and tax rates are your assumptions and are labelled as such.
- • Losses are not modelled as tax refunds. Real tax-loss harvesting can be worth something; counting it here would flatter the taxable account.
- • No state income tax is applied. Where your state taxes investment income, the taxable account does worse than shown.
- • A backdoor Roth contribution is not modelled. It has its own rules, including the pro-rata rule, and deserves a tax professional.
- • Contribution limits are also capped by your taxable compensation, which this does not check.
- • This is education, not tax advice, and it is not a recommendation of any investment.
Reviewed when the IRS publishes new limits, and quarterly otherwise. Editorial conclusions do not depend on affiliate availability.
Sources
IRS: contribution limits for retirement plansChecked August 15, 2026 · high confidence
Annual IRA contribution and catch-up limits.
IRS: Roth IRA contribution limits and income rangesChecked August 15, 2026 · high confidence
Income phase-out ranges by filing status.
IRS: Roth IRA distributionsChecked August 15, 2026 · high confidence
Qualified distribution conditions and the age rule.
Frequently asked questions
Is a Roth IRA always better than a taxable brokerage account?
No. It is better for money that stays invested until retirement, because nothing is taxed on the way. It is worse for money you need before 59½, since taking earnings out early is generally taxed and penalised, and it is unavailable above the income limit.
What is the 2026 Roth IRA contribution limit?
For 2026 it is $7,500, or $8,600 from age 50. Your contribution is also capped by your taxable compensation, and by the income phase-out.
What happens if I earn too much for a Roth IRA?
A direct contribution is not allowed above the phase-out band. A taxable brokerage account has no income limit at all. A backdoor Roth may be available, but it has its own rules and is worth asking a tax professional about first.
Can I take money out of a Roth IRA early?
You can take back what you contributed at any time, without tax or penalty. The earnings are the restricted part: taken before 59½ they are generally taxed and penalised.
Why does the taxable account fall behind if the return is the same?
Because it pays tax along the way. Dividends are taxed the year they arrive even when reinvested, realised gains are taxed the year you take them, and whatever gain is left is taxed when you sell. Each of those payments is money that stops compounding.
Does it matter what I hold in the taxable account?
A great deal. Most of the annual drag comes from realising gains, so a low-turnover index fund costs far less to hold in a taxable account than an actively traded one. Change the turnover input above and watch the gap move.
Should I do both?
If you invest more than the yearly cap, you have to. Fill the Roth to the limit and put the rest in the brokerage account; the calculator models exactly that split when your contribution exceeds the cap.