Tax planning is one of the best things you can do to keep more money in your pocket in retirement. There are specific things to consider when planning for your taxes in the future.
When you contribute to a 401(k) or traditional IRA, you are reducing your taxable income for the year. The money you put into these accounts also grows tax deferred until you withdraw it in retirement. It's not too late to reduce your tax bill for 2020; IRAs are unique in that you have until April 15 of this year to contribute and reduce your taxable income for 2020.
Besides the tax benefits you receive now, maxing out your contributions is an important part of increasing your retirement security. You can put away up to $19,500 in your 401(k) in 2020 and up to $6,000 in your IRA (and those limits are the same for 2021 as well).
If you are 50 and older, take advantage of catch-up contributions. You can save an additional $6,500 in your 401(k) and an extra $1,000 in an IRA. You should be taking a close look at your retirement accounts when you’re 50 years old to determine if you’re on track to meet your savings goals.