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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).