The tax advantages of saving for retirement could be a limited-time opportunity for wealthy investors.
President Barack Obama's 2016 fiscal year budget includes a proposal to cap contributions to tax-preferred retirement plans like 401(k)s and IRAs. "While tax-preferred retirement plans are intended to help middle class workers prepare for retirement, loopholes in the tax system have let some wealthy individuals convert these accounts into tax shelters," the White House said. Under the proposal, individuals would be prohibited from contributing to or accruing additional benefits in such accounts once balances reach $3.4 million—enough, it estimates, to provide an annual income of $210,000 in retirement.
Before you panic, take the news with a grain of salt: Financial advisors say the cap is unlikely to pass. "I used to react to proposals and then realized, heck, most of them never get passed, and the ones that do are usually altered," said certified financial planner Carolyn McClanahan, founder and director of financial planning at Life Planning Partners. "I've learned with politics, you worry about it when it actually happens."