Marginal Tax Rate

The rate of tax applied to your next unit of income.

Example

If income above 50,000 is taxed at 40%, someone earning 60,000 has a 40% marginal rate even if their average rate is lower.

Decisions about extra income or tax-deductible contributions depend on the marginal rate, not the average rate.

Pre-Tax Contribution — A retirement contribution made before income tax is applied, with tax paid instead when money is withdrawn.
Ordinary income — Money an investment pays you while you still own it - interest, dividends, rent, coupons - typically taxed in the year it is received.

Pre-tax or post-tax is really a bet on your tax rate now versus later — The two main account structures give the same result if your tax rate is the same when you contribute and when you withdraw. The choice turns on whether you expect your rate to be higher or lower in retirement. (12 min)
Early access is expensive, fees compound, and the rules can change — The main costs of retirement accounts are taxes and penalties on early withdrawal, fees inside the plan, and the risk that governments change contribution, withdrawal or tax rules. (11 min)
The same investment can keep very different amounts depending on which account holds it — Asset location means putting heavily taxed investments inside tax-advantaged accounts where available, and lightly taxed ones in taxable accounts. The effect compounds over decades. (12 min)