Why does a tax-deferred retirement account accumulate more money than a taxable account,assuming the same amount is contributed every year and the accounts earn the same return every year?

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Tax-deferred accounts (such as traditional IRAs and 401(k) plans) allow for contributions to be made pre-tax, meaning that account holders do not pay taxes on the contributions until they withdraw the funds in retirement. In contrast, taxable accounts are funded with after-tax dollars, and any earnings generated in the account are subject to income or capital gains taxes. Therefore, with tax-deferred accounts, there are no tax liabilities on account activity, which allows for more money to accumulate over time compared to a taxable account with the same contribution and return rate. Options for investments and risk-taking are factors that can influence returns in both taxable and tax-deferred accounts, but the tax advantage is the key factor that leads to greater accumulation in tax-deferred accounts.

Why Does a Tax-Deferred Retirement Account Accumulate More Money Than