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Your Finance: How U.S. budget could cost you

Understand your retirement savings. The Obama budget reportedly

Understand your retirement savings. The Obama budget reportedly caps tax-deferred IRA accounts at $3 million. Credit: iStock

The budget that President Barack Obama unveiled on Wednesday has a long way to go before any part of it becomes law. It is basically his opening play in a long game that will involve the House, the Senate and countless lobbyists.

Obama's contention that he has already met Republicans halfway does somewhat increase the chances of some tax and spending changes coming out of this year's financial wrangling. So does the broad desire on Capitol Hill to undo some of the automatic spending cuts called sequestration.

So, yes -- at some point, it's probably going to cost you. Here are some steps you can take to protect yourself, while you watch the tussle in Washington.

Prepare for inflation. Opponents of Obama's proposal to link Social Security benefits to a so-called chained consumer price index are loud and plentiful. A retiree who starts at age 65 with $20,000 in annual Social Security benefits would be receiving $289 a month less after 25 years under the chained-CPI approach. So look at keeping a corner of your 401(k) or IRA invested in items that will beat inflation over time: commodities, real estate and growth stocks. Resist the temptation to lock up too much of your money in an annuity that doesn't adjust benefits for inflation.

Understand your retirement savings. The Obama budget reportedly caps tax-deferred IRA accounts at $3 million. But in fact, this provision is much more complex and could eventually hit as much as 5 percent of workers currently between the ages of 26 and 35. The president also proposes to save money by killing "stretch" IRAs that allow children to inherit tax-favored IRAs. If you're a big saver, make sure you don't have all of your savings in tax-deferred retirement accounts.

Plan charitable contributions over many years. The Obama budget raises what's become a perennial suggestion: a 28 percent cap on the value of deductions that high earners can take. That would limit the value of write-offs of home mortgage interest and charitable deductions. If you're in a higher tax bracket, consider front-loading big gifts, sending them into a family-controlled trust and doling them out later.

Be careful about borrowing for the next college year. Rates on federal student loans are set to double on July 1. Obama's solution is to tie those loans to market rates. That's sly, because under current low rates it would probably drop the cost of loans for borrowers. But as future market rates rose, it could result in more costly college borrowing. Obama wants rates to stay fixed for the life of the loan, but watch that space before signing up for big college loans going forward.

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