VOOETF0.03%|VFIAXFUND0.04%|VTIETF0.03%|VTSAXFUND0.04%|QQQETF0.20%|FNCMXFUND0.29%|IVVETF0.03%|FXAIXFUND0.015%|QQQMETF0.15%|SPYETF0.09%|SWPPXFUND0.02%|FZROXFUND0.00%|VOOETF0.03%|VFIAXFUND0.04%|VTIETF0.03%|VTSAXFUND0.04%|QQQETF0.20%|FNCMXFUND0.29%|IVVETF0.03%|FXAIXFUND0.015%|QQQMETF0.15%|SPYETF0.09%|SWPPXFUND0.02%|FZROXFUND0.00%|

personalised after-tax outcome

The expense-ratio comparison
misses 80% of the tax drag.

ETFs and mutual funds tracking the same index can show a 1-basis-point expense ratio gap and a 40-basis-point after-tax gap. The difference is what the expense ratio doesn't see: capital gains distributions paid by mutual funds (taxable in the year received), the dividend tax on qualified dividends, NIIT for higher earners, and the terminal sale CGT. This calculator personalises all four against your federal bracket, state, and household income.

account wrapper

investment + tax profile

Initial investment

$

Holding period (years)

Expected pre-tax return (%/yr)

Dividend yield (%/yr)

Federal bracket (2026)

State tax rate (% on cap gains/div)

Household income, joint ($)

$

NIIT does not apply at this income (joint MAGI ≤$250K).

fund-pair details

ETF

Expense ratio (%)

CGT yield (%)

Mutual fund

Expense ratio (%)

CGT yield (%)

Defaults: VOO ETF (0.03% ER, ~0.05% CGT yield) vs VFIAX mutual fund (0.04% ER, ~2.2% CGT yield — historical large-distribution years). Adjust to your actual fund pair from each fund's N-CSR.

after-tax outcome over 20 years

ETF net (after-sale)

$337,777

after-tax CAGR 7.14%

Mutual fund net

$312,670

after-tax CAGR 6.70%

ETF advantage

+$25,107

over the holding period, after expense ratio, dividend tax, CGT distribution tax, and terminal sale CGT. Annualised after-tax CAGR gap: +0.440%.

annual drag breakdown

componentetfmutual fund
Expense ratio0.030%0.040%
Dividend tax drag0.320%0.320%
CGT distribution drag0.010%0.440%
Total annual drag0.360%0.800%

Effective taxable rate on cap gains / qualified dividends = federal LTCG (15.00%) + state (5.0%) = 20.00%. Terminal sale CGT applied to gains at the same rate. Pre-tax growth path Σ amount × (1 + r − total_drag)^t.

Why personalising the bracket matters

A blog post that quotes “20% capital gains rate” flattens the distribution of US investors. The actual after-tax ETF advantage varies by a factor of 3 across the bracket range:

Lower brackets (12%)

LTCG rate is 0%. Dividend and CGT distribution drag is just the state portion. ETF advantage is mostly the expense ratio — typically 1-3 basis points. The calculator returns small numbers here and that is the honest answer.

Middle brackets (22-32%)

LTCG rate is 15% + state + NIIT (if MAGI > $250K). Effective rate lands at 18-23%. ETF-vs-MF gap is meaningful — 35-50 basis points annualised — and translates to material lifetime difference.

Top brackets (35-37%)

LTCG rate is 20% + state + NIIT = 27-32% effective. ETF advantage is largest. The maths of using ETFs over mutual funds in taxable accounts becomes nearly mandatory at this income level — 50-80 basis points annualised.

What this calculator actually computes

  1. Annual drag stack: expense ratio + (dividend yield × effective dividend rate) + (CGT distribution yield × effective LTCG rate). Each component shown explicitly so you can see what is dominating.
  2. Effective rate: federal LTCG (0%/15%/20% by bracket) + state tax + NIIT (3.8% if joint MAGI > $250K). Applied to both qualified dividends and capital gain distributions.
  3. Compounded growth: initial amount × (1 + pre-tax return − annual drag)^years. Two wrappers computed independently with their own drag.
  4. Terminal sale CGT: at end of holding period, (ending balance − cost basis) × effective LTCG rate. Subtracted from the ending balance to give “net after-sale”.
  5. Gap: ETF net − MF net (positive = ETF wins). Annualised gap = ETF after-tax CAGR − MF after-tax CAGR.

Methodology and assumptions

  • Federal LTCG brackets: 2026 inflation-adjusted, joint filing. 0% rate up to ~$96K, 15% rate up to ~$487K, 20% rate above. Verify against IRS Rev. Proc. for the current year before relying on for actual filing.
  • NIIT: 3.8% applied to investment income when modified AGI exceeds $250,000 joint (IRC § 1411). The calculator uses a flat trigger; the actual NIIT is on the lesser of net investment income or MAGI excess — close enough for planning but verify for filing.
  • Qualified dividend treatment: ETF and broad-market mutual fund dividends are predominantly qualified. The calculator treats 100% as qualified (taxed at LTCG rate). Funds with significant REIT or international content can have non-qualified portions that would push dividend drag higher.
  • CGT distribution defaults: ETF 0.05% reflects the typical near-zero distribution from a Vanguard equity ETF under Rule 6c-11. Mutual fund 2.20% reflects a heavy-distribution year for an index mutual fund. Set both to your fund's actual recent distribution history from its N-CSR.
  • Compounding: annual compounding with drag subtracted from gross return each year. Continuous-compounding or daily-rebalancing models would produce slightly different lifetime numbers but the relative gap is unchanged.
  • Cost basis: assumed equal to initial investment. Cost basis adjustments from reinvested distributions are not modelled (they would reduce the terminal CGT slightly but do not affect the year-over-year drag).

This is a planning calculator, not tax advice. Cross-check the effective rate for your actual situation with your tax software or a CPA before locking large allocation decisions. The qualitative finding — that ETFs are tax-advantaged over comparable mutual funds in taxable accounts, and tax-neutral inside shelters — is well-established (see the statutory basis page). The quantitative magnitude depends on the inputs you put in.