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Team Cocco Financial Planning

Cash Flow Strategy: Tax-Free Strategy

IFR Module 231 — Taxable vs. Tax-Deferred vs. Tax-Free

The core concept: Three accounts, same contribution, same gross return — but dramatically different outcomes because of HOW and WHEN taxes are applied. This calculator reveals the true cost of taxes on wealth accumulation and retirement income.

Inputs

Amount invested each year (same for all 3 strategies)
How long until you start withdrawing
Gross annual return before taxes
Your current marginal tax rate
Expected tax rate in retirement
How many years you'll draw income
Taxable Account
Tax-Deferred (401k/IRA)
Tax-Free (Roth/LIRP)
$0
Taxable — After-Tax Value
Annual income: $0
$0
Tax-Deferred — After-Tax Value
Annual income: $0
$0
Tax-Free — After-Tax Value
Annual income: $0

Accumulation Phase — Growth Comparison

All three strategies with the same gross return, but different tax treatments during accumulation.

Distribution Phase — Net After-Tax Annual Income

When you withdraw, taxes hit again. This chart shows the net spendable income from each strategy.

Year-by-Year Accumulation

YearContributionsTaxable (After-Tax)Tax-Deferred (Gross)Tax-Free (Gross)

The Tax Impact Summary

Key Takeaway

  • Taxable accounts suffer double taxation — taxed on growth every year AND on gains at withdrawal. The annual tax drag prevents full compounding.
  • Tax-deferred accounts (401k/IRA) defer taxes but pay the full bill at withdrawal. Every dollar withdrawn is taxed as ordinary income. You're a "tax partner" with the government.
  • Tax-free accounts (Roth/LIRP) use after-tax dollars but never face taxes on growth or withdrawals. The longer the time horizon, the more dramatic the advantage.
  • The LIRP advantage over Roth: no contribution limits, no income phase-outs, no required minimum distributions, plus death benefit and living benefits.
Team Cocco Financial Planning · Largo, FL