When you first start learning about taxes, one common misconception is how they work. It’s easy to see tax brackets and think “oh, the more I make the more I’m taxed.” That part is true.
But our tax rates are marginal, meaning you’re only taxed at that higher rate for those dollars in that bracket.
This can get extra complicated in retirement, so I found this explainer quite useful to help me understand it.
Effective vs. Marginal Tax Rate in Retirement: Why Taxes Don’t (Usually) Cause People to Go Broke [Oblivious Investor] – “If you have read about retirement tax planning, you have likely read about how people’s tax rate in retirement is often much higher than they’d expected. You may have even heard it referred to as a “tax torpedo.””