What is meant by one being in a “tax bracket”?
Tax brackets refer to the range of taxable within which you fall. An income tax bracket usually refers to federal or state tax, not the combined rate. I have put here the tax brackets for 2016 for IRS and State of California.  https://www.irs.com/articles/2016-federal-tax-rates-personal-exemptions-and-standard-deductions  https://www.ftb.ca.gov/forms/2016-california-tax-rates-and-exemptions.shtml According to those, a taxable income of 100,000USD would fall in the 28% bracket for the IRS and 9.30% for State of California. The combined rate is therefore 37.3%. However, this does not mean you would pay 37,300USD. First of all, your applicable tax rate applies only for each dollar in your tax bracket (e.g. 28% * 8,849USD for IRS). Therefore, to calculate your combined taxes you would need to do:  Therefore, your effective tax rate would be much lower than the combined tax rate of 37.3%. Now do note that this is an example to illustrate tax brackets and is nowhere near the amount of taxes you would be required to pay because of various credits and deductions that you would be able to benefit from. Edit: As suggested in the comments, a note on marginal tax rate (referred to here as combined tax rate). This is the rate of taxes paid on an additional dollar of income. Here, every additional dollar of income would be taxed at 37.3%, leaving you with 62.7 cents. "As ApplePie discusses, ""tax bracket"" without any modifiers refers to a single jurisdiction's marginal tax rate.  In your case, this is either your California's ""tax bracket"" or your Federal ""tax bracket"" (not including marginal Social Security and Medicare taxes).  But if someone says ""combined state and federal tax bracket"", they probably mean the combination of your state and federal income tax brackets (again, lot including sales taxes, business and occupational taxes, social security taxes, and medicare taxes).  The math to combine the state and federal marginal tax rates is a bit tricky, because most people can deduct either their state and local income taxes, or their state and local general sales taxes when computing their income for federal income tax purposes.  (The federal ""alternative minimum tax"" restricts this deduction for some people.) For a single person earning $ 100,000 of salaries and wages in California, whose state income taxes are close to their standard deduction, the calculations for the combined marginal income tax rate look something like this: As mentioned above, this understates the tax bite on marginal ""earned income"".  To find the true marginal rate, we need to add in Social Security taxes, Medicare taxes, sales taxes, and business & occupation taxes.  The Social Security and Medicare taxes are sometimes called ""self employment taxes"".  This math omits unemployment insurance and workers' compensation insurance, because those taxes are typically capped well below $ 100,000 per year of income.  This math also omits B & O taxes, because this question is California specific. If an employer wishes to increase an employee's pay by $ 1,076.50, the first $ 76.50 will go to the employer's share of Social Security and Medicare taxes.  The remaining $ 1,000.00 will be subject to the combined marginal income tax rate discussed above, plus will have $ 76.50 go to the employee's share of Social Security and Medicare taxes.  The employee might buy some extra things with some of their extra money, and pay sales tax on them. In 2016, a 9 % sales tax rate was common in California's largest cities. The IRS estimated that (for a single person with no dependents making $ 100,000 per year who did not buy a boat, RV, motor vehicle, or major home construction), about 9 % of their marginal gross income was subject to sales tax."
Part of the difficulty in this sort of planning is that you are also betting on future tax rates and comparing them with current taxes.  If you are in a low tax bracket now, but expect to be in a higher one when you take the money out, it is better to pay the taxes now.  If you are in a high tax bracket now, but expect to be in a lower one when you retire/take the money out, then it is better to defer the taxes until then.  If you think that future sessions of Congress will decide to tax withdrawals from Roth accounts, then you should contribute to traditional accounts.  The problem is that you don't know with certainty what the future will bring. So you have to make educated guesses about what might happen, and what you can do now to protect yourself from it. Ideally, plan so that even if the bad things happen, you will be reasonably comfortable. "I'd suggest you avoid the Roth for now and use pretax accounts to get the greatest return. I'd deposit to the 401(k), enough to get as much match as permitted, then use a traditional IRA. You should understand how tax brackets work, and aim to use pre-tax to the extent it helps you avoid the 25% rate. If any incremental deposit would be 15% money, use Roth for that. Most discussions of the pre-tax / post tax decision talk about 2 rates. That at the time of deposit and time of withdrawal. There are decades in between that shouldn't be ignored. If you have any life change, a marriage, child, home purchase, etc, there's a chance your marginal bracket drops back down to 15%. That's the time to convert to Roth, just enough to ""top off"" the 15% bracket.  Last, I wouldn't count on that pension, there's too much time until you retire to count on that income. Few people stay at one job long enough to collect on the promise of a pension that takes 30+ years to earn, and even if you did, there's the real chance the company cancels the plan long before you retire." How about if we lower taxes on the bottom two brackets and increase taxes on the top two brackets? Right now it's 10, 15, 25, 28, 33, and 35 percent. But wouldnt it be better if we change it to 8, 13, 25, 28, 35, 38 percent?   The poor are the ones who spends most of their money on sale taxes than compared with any other brackets and the more money the poor have the more they will spend which will lead to more growth in the economy Bush tax cuts and similarly. We no longer believe that the wealthy have to play by the rules. We perpetuate this notion because too many believe they too will be captains of great wealth.   The wealthy in turn have invested in emerging markets like china or commodities like gold. Basically its being horded by the wealthy and banks.   In a fixed money system like monopoly what happens? Someone wins and gets all the money. With inflation at least they are making more money so that eventually a huge withdrawl of cash from the system is healed. Because Monopoly was meant to be a cautionary tale of oligarchy. "In a Traditional IRA contributions are often tax-deductible. For instance, if a taxpayer contributes $4,000 to a traditional IRA and is in the twenty-five percent marginal tax bracket, then a $1,000 benefit ($1,000 reduced tax liability) will be realized for the year. So that's why they tax you as income, because they didn't tax that income before. If a taxpayer expects to be in a lower tax bracket in retirement than during the working years, then this is one advantage for using a Traditional IRA vs a Roth. Distributions are taxed as ordinary income. So it depends on your tax bracket  UPDATE FOR COMMENT: Currently you may have heard on the news about ""the fiscal cliff"" - CNBC at the end of the year. This is due to the fact that the Bush tax-cuts are set to expire and if they expire. Many tax rates will change. But here is the info as of right now: Dividends: From 2003 to 2007, qualified dividends were taxed at 15% or 5% depending on the individual's ordinary income tax bracket, and from 2008 to 2012, the tax rate on qualified dividends was reduced to 0% for taxpayers in the 10% and 15% ordinary income tax brackets. After 2012, dividends will be taxed at the taxpayer's ordinary income tax rate, regardless of his or her tax bracket. - If the Bush tax cuts are allowed to expire. - Reference - Wikipedia Capital Gains tax rates can be seen here - the Capital Gains tax rate is relative to your Ordinary Income tax rate For Example: this year long term gains will be 0% if you fall in the 15% ordinary tax bracket. NOTE: These rates can change every year so any future rates might be different from the current year." "(I'm expanding on what @BrenBarn had added to his answer.) The assumption of ""same tax bracket in retirement"" is convenient, but simplistic. If you are in, for instance, the second-lowest bracket now, and happen to remain in the second-lowest bracket for retirement, then Roth and traditional account options may seem equal — and your math backs that up, on the surface — but that's making an implicit assumption that tax rates will be constant. Yet, tax brackets and rates can change. And they do. The proof. i.e. Your ""15% bracket"" could become, say, the ""17% bracket"" (or, perhaps, the ""13% bracket"") All the while you might remain in the second-lowest bracket. So, given the potential for fluctuating tax rates, it's easy to see that there can be a case where a traditional tax-deferred account can yield more after-tax income than a Roth post-tax account, even if you remain in the same bracket: When your tax bracket's tax rate declines. So, don't just consider what bracket you expect to be in. Consider also whether you expect tax rates to go up, down, or remain the same. For twenty-something young folk, retirement is a long way away (~40 years) and I think in that time frame it is far more likely that the tax brackets won't have the same underlying tax rates that they have now. Of course, we can't know for sure which direction tax rates will head in, but an educated guess can help. Is your government deep in debt, or flush with extra cash? On the other hand, if you don't feel comfortable making predictions, much better than simply assuming ""brackets and rates will stay the same as now, so it doesn't matter"" is to instead hedge your bets: save some of your retirement money in a Roth-style account, and some in a traditional pre-tax account. Consider it tax diversification. See also my answer at this older but related question:" So we can lower your taxes, although at a cost of say 4 million federal employees. Now the fun begins... your market is flooded with new employees, so many people applying there isn't a reason to keep you at your pay. It's 2008 again, you lost your job, your $30 an hour job now pays $17, and you're unemployed, but at least your tax bracket went down. "Free hint - If you're using some non-traditional definition of a common English word in a public forum then you should choose another word.   But whatever.  Please explain what exactly you were referring to.   I mean ""rather"" isn't even that important.  The real important phrase is this:  ""in most cases, people end up paying more in taxes""  There aren't multiple ways to interpret that.  ""People end up paying more in taxes"" means there are two scenarios - one with more taxes and one with less.  You've claimed that the first of those is tax-deferred accounts and gave a reason why.  But what is the second scenario?    &gt;NOWHERE  Exactly.  You're totally wrong.  That's all I needed to hear.  Have a nice evening."