An IRA is a valuable part of your investment strategy because it allows all of your investment earnings to accumulate free of current taxes. And that can make a big difference in how your money grows over time.
This chart compares the growth of two hypothetical investments, one taxable and the other tax-deferred. Each has annual contributions of $2,000 for 30 years and assumes an 8% annual rate of return. The earnings for the taxable investment are subject to a combined federal and state tax rate of 35%.
As you can see, within just 10 years, the tax-deferred IRA begins to grow more quickly than the taxable investment. In 30 years, the IRA account is worth over $100,000 more than the taxable account.
Tax-Deferred Compounding Makes Your Money Work Harder for You