Why does the marginal rate matter more than the average?

The contribution replaces your top dollars of income, so the tax saved today is the tax on those top dollars. The effective rate averages in lower-taxed dollars that the contribution never touches.

What if I don't know my retirement tax rate?

Guess the bracket, not the exact figure -- the verdict only changes when the comparison crosses your current rate. Then consider splitting: Roth for some dollars and Traditional for others hedges an uncertain future rate.

When your marginal rate is identical now and in retirement, the math ties exactly: Roth multiplies after-tax dollars by the growth and pays nothing later, Traditional multiplies pre-tax dollars by the growth and takes the same percentage off at the end.

Roth vs Traditional Calculator · filed Oct 10, 2026

Marginal or effective rate: which one decides?

The most common way people get the Roth vs Traditional answer wrong is the rate they plug in. Your average rate across all dollars is the wrong number; the rate on your top dollar is the right one. This page posts the same example both ways — and the verdict flips.

Same $10,000 a year, 30 years, 7%, 15% in retirement. With the 22% marginal rate: Traditional wins by $5,329. With the 12% effective rate wrongly plugged in: Roth wins by $2,284.

The worked example — $10,000 a year, 30 years, 7%, 15% in retirement

Roth goes in (after 22% marginal)$7,800

Roth at retirement, tax-free$59,376

Traditional grows to$76,123

Traditional spendable (15% later)$64,704

Verdict with the marginal rateTraditional by $5,329

Verdict with the 12% effective rateRoth by $2,284

Your effective rate is a blended average across every dollar you earn; your marginal rate is the tax on your next dollar. The 401(k) contribution replaces your top dollars of income — the ones taxed at your highest rate — so the deduction is worth your marginal rate, not your average. Plugging in the effective rate understates what Traditional saves you today and quietly hands the verdict to Roth.

Same trap on the retirement side: use the marginal rate your withdrawals will land in, your best guess of the top bracket, not an average across retirement income. Most retirees land in a lower bracket than their working years — no salary, often no mortgage — which is why Traditional wins so often for mid-career earners.

When the two marginal rates are equal, the choice is a dead tie: the growth factor cancels and both paths leave identical spendable dollars. Run your own pair in the calculator and watch the stamp snap to TIE.

Run your own numbers in the calculator

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Do I use my marginal or effective tax rate for Roth vs Traditional?: Use the marginal rate -- the tax on your top dollar. Worked example: $10,000 a year for 30 years at 7%, 15% in retirement. With the 22% marginal rate, Traditional wins by $5,329 ($64,704 spendable versus $59,376). Plugging in the 12% effective rate instead flips the answer: Roth wins by $2,284.
Why does the marginal rate matter more than the average?: The contribution replaces your top dollars of income, so the tax saved today is the tax on those top dollars. The effective rate averages in lower-taxed dollars that the contribution never touches.
What if I don't know my retirement tax rate?: Guess the bracket, not the exact figure -- the verdict only changes when the comparison crosses your current rate. Then consider splitting: Roth for some dollars and Traditional for others hedges an uncertain future rate.
When is it a tie?: When your marginal rate is identical now and in retirement, the math ties exactly: Roth multiplies after-tax dollars by the growth and pays nothing later, Traditional multiplies pre-tax dollars by the growth and takes the same percentage off at the end.

Marginal or effective rate: which one decides?

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Filed under retirement taxes