← Glossary

Capital gains tax drag

Tax drag reduces the annual return actually compounding in the projection, applied only when the account is marked taxable — a tax-advantaged account, such as most retirement accounts, has none. It's modeled here as a flat percentage haircut on the gross assumed return, a simplification of the more complicated real tax treatment of realized versus unrealized gains, and of your own tax bracket.

This explains what capital gains tax drag measures. It isn't investment advice — see the disclaimer.