Tax-Free Account Growth Calculator
Compare tax-free account growth versus taxable investment returns over time based on contribution limits and expected returns.
Tax-Free Savings Accounts (TFSA in Canada; ISA in the UK; Roth IRA in the U.S.) allow your investments to grow without ever paying tax on the gains or withdrawals. Understanding the compounding effect over time shows just how powerful these accounts are compared to taxable equivalents.
Formula (compound growth): Future Value = Contribution × ((1 + r)^n − 1) ÷ r × (1 + r) (for regular annual contributions) Future Value = PV × (1 + r)^n (for a single lump sum)
Tax Drag Comparison: Taxable After-Tax Return = Nominal Return × (1 − Marginal Tax Rate) TFSA After-Tax Return = Nominal Return (no tax drag)
What each variable means:
- Contribution — annual deposit (subject to annual limits).
- r — annual rate of return (as a decimal).
- n — number of years invested.
- Marginal Tax Rate — your top income tax bracket; what you’d pay on investment gains in a taxable account.
Annual contribution limits (2024):
- TFSA (Canada): $7,000/year; unused room carries forward
- ISA (UK): £20,000/year
- Roth IRA (U.S.): $7,000/year ($8,000 if age 50+); income limits apply
Worked example: Invest $7,000/year in a TFSA for 30 years at 7% annual return.
FV = $7,000 × ((1.07)^30 − 1) ÷ 0.07 × 1.07 = $7,000 × (7.6123 − 1) ÷ 0.07 × 1.07 = $7,000 × 94.461 = $661,227
Total contributions = $7,000 × 30 = $210,000 Tax-free growth = $661,227 − $210,000 = $451,227 in gains — completely tax-free
In a taxable account at 30% marginal rate, the same contributions would yield roughly $490,000 after tax — $171,000 less.