Marginal tax rate
The tax rate on your next dollar of income. It is the rate of the highest tax bracket your taxable income reaches.
Your marginal rate tells you how much tax you save by deducting a dollar or pay by earning one more. It matters when you compare traditional and Roth contributions.
Your effective tax rate is your total tax divided by your income. Because lower slices of income are taxed at lower rates, your effective rate is always below your marginal rate.
Example
Made-up brackets for simple math: 10% on the first $10,000 and 12% above that. On $30,000 of taxable income, tax is $10,000 × 10% + $20,000 × 12% = $1,000 + $2,400 = $3,400. The marginal rate is 12%, and the effective rate is $3,400 ÷ $30,000 = about 11.3%.