For any incremental contribution, it's marginal rate now vs marginal rate in retirement, not marginal rate now vs effective rate in retirement. The only time that it's marginal rate now vs effective rate in retirement is if you:FrugalProfessor wrote: ↑Tue Apr 23, 2019 9:14 am You are correct. The relevant trade-off is marginal rate today vs average rate in retirement. I spent the first decade of my investing career thinking that the relevant tradeoff was marginal today vs marginal in retirement, but I was wrong for reasons you mention in your post.

Bloggers like GoCurryCracker & Root of Good have zero average rate in retirement. It's pure arbitrage (with the caveat that tax brackets & rates may change). Both have multi-million dollar portfolios in early retirement and neither pays anything in taxes (https://www.gocurrycracker.com/6-years- ... ee-living/). Further, much of Root of Good's family is on Medicaid despite having a net worth of $2M (he does so by having very low income since he retired early).

I explain this fact more elaborately beginning on page 21 (through 28) of the attached pdf, which is a brain dump of what I've learned about the tax code the past decade (https://www.dropbox.com/s/lv96xgpfp95d3 ... t.pdf?dl=1).

1) have no other sources of retirement income

2) you have $0 in retirement savings

Mainly because in this instance, effective rate and marginal rate are basically the same thing. Once you have a meaningful amount of money in retirement savings, then any additional contribution you need to compare marginal tax rates now vs marginal tax rates at retirement.

For example,

Person A:

Your current marginal rate is 22%. You currently have $0 in retirement savings. At retirement, we'll assume the standard deduction and social security cancel out to make the math easier, and also assume that the tax structure is the same as now and single.

If you contribute $19k to your pre-tax 401k and it grows 3x to $57,000, then you withdraw it all when you retire. In this instance, you are indeed paying the effective tax rate (and also the marginal rate in a sense, though the "marginal rate" crosses over multiple brackets).

Person B:

Keep everything the same, but you have $2,000,000 $666,666 in retirement savings which grows 3x to $2,000,000 at retirement. You plan to withdraw $80,000 per year from that pot of money.

If you contribute $19k to your pre-tax 401k, it grows to 3x to $57k. At retirement, you pull $80,000 from your nest egg as planned. Then, you pull the $57k. For that $57k (which came from your $19k contribution), you are paying the marginal tax rate, not the effective rate.

The problem is, of course, is that it's not so simple. You can game your tax rates in retirement to some extent by changing how much you withdraw from your accounts, so it gets really complicated. But fundamentally it's marginal now vs marginal at retirement. I think a lot of misunderstandings come because people have wildly inaccurate views as to what their retirement income will look like.

Edit: some numbers.