Save Safe: Dividend Plan Alters Retirement Planning

"If the proposal is passed, the case for owning equities outside of a tax-deferred account becomes stronger from a financial planning point of view," says Joel Dickson, a tax specialist at Vanguard.

So you would have to start rethinking where you house your investments. The old rule was to keep tax-inefficient investments like -- you guessed it -- dividend-paying funds inside a tax-deferred account such as a 401(k). That way you could postpone paying those annual income taxes.

But with a dividend tax cut, all that changes. You would want to keep dividend-dispending securities in your taxable accounts to take advantage of that tax break. You'd also want to continue holding more tax-efficient investments such as index funds outside of a 401(k). If you own individual stocks, you'd want to keep those in your taxable accounts as well. When you sell them, you only owe capital gains taxes, and those rates would effectively go down with Bush's plan.

In your 401(k), you'd keep fixed-income investments, as with a corporate bond fund. The annual interest that bonds produce would still be subject to income taxes. By holding those in your retirement plan, you wouldn't be giving up any of the benefits of a dividend tax break, and you'd defer paying those taxes until you withdraw money from the plan.

A nondeductible IRA also loses some of its allure under the Bush proposal. Today, if you make an after-tax contribution in this type of IRA, you're basically converting capital gains taxes -- which get hit at a lower rate -- into ordinary income. With a dividend tax cut, you might be turning some tax-free income into taxable income. And that makes no sense at all.

"I have a hard time figuring out why you'd invest in equities in a nondeductible IRA if this proposal were to pass," says Vanguard's Dickson.