{"id":357872,"date":"2026-04-01T02:59:11","date_gmt":"2026-04-01T02:59:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/357872\/"},"modified":"2026-04-01T02:59:11","modified_gmt":"2026-04-01T02:59:11","slug":"how-senior-law-firm-partners-are-building-a-retirement-with-no-tax-bill","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/357872\/","title":{"rendered":"How Senior Law Firm Partners Are Building a Retirement With No Tax Bill"},"content":{"rendered":"

A 55-year-old equity partner at an AmLaw 100 firm sits on $1.8 million in a traditional 401(k), earns $800,000 a year, and has been deferring income into a Nonqualified Deferred Compensation plan for a decade. On paper, the retirement picture looks pristine, but a deferred tax liability potentially in the hundreds of thousands of dollars is accumulating in that 401(k).<\/p>\n

Every dollar in that 401(k) has never been taxed, and when Required Minimum Distributions<\/a> begin at 75 if you are turning 73 after January 1, 2033, the IRS will force withdrawals whether the partner needs the money or not. On a $1.8 million balance growing over 18 years, those RMDs could push taxable income above $200,000 a year at a time when the partner has no deductions left to offset them. Stacked on top of Social Security and NQDC distributions, the result is a tax rate that rivals the working years.<\/p>\n

Paying the tax now at a known rate beats paying it later at an unknown rate. A systematic Roth conversion strategy<\/a> executed over the next 15 years, calibrated to the top of the 24% federal bracket, is the mechanism for doing that.<\/p>\n

The 24% Bracket as a Conversion Target<\/p>\n

For married couples filing jointly in 2026, the 24% bracket runs from $211,401 to $403,550. A partner who has retired or stepped back to counsel status with reduced income has a conversion window: the gap between their current taxable income and the top of the 24% bracket is a starting point for how much they could convert annually.<\/p>\n

But the tighter constraint is often IRMAA. If the partner\u2019s taxable income in early retirement is $180,000 from NQDC distributions and part-time consulting, then adding a conversion would raise MAGI. The first IRMAA threshold for married couples is roughly $218,000 (adjusting annually), with surcharges increasing at higher tiers. Many retirees cap conversions at the first or second IRMAA threshold rather than at the top of the 24% bracket to avoid thousands of dollars in annual Medicare surcharges.<\/p>\n

Within those constraints, each dollar converted costs 24 cents in federal tax (plus any state tax) and permanently removes that balance from the RMD calculation. Repeat this for 10 to 15 years, and the 401(k) shrinks to a manageable size before RMDs begin.<\/p>\n

The NQDC Sequencing Problem<\/p>\n

Law firm partners face a complication most retirement guides ignore. NQDC plans, governed by IRC Section 409A, require distribution timing elections to be made years in advance. A partner who elected to receive deferred compensation over five years beginning at retirement will have that income stacked on top of any Roth conversion attempted in the same years.<\/p>\n

If NQDC distributions add $200,000 per year to income during the conversion window, the partner may have no room left in the 24% bracket for conversions. Combined income above the first IRMAA threshold, projected at roughly $228,000 for married filers in 2026, triggers Medicare surcharges under the two-year lookback rule. At Tier 1, that is approximately $1,200 per person per year, or about $2,400 for a couple. Push income above the second tier (projected around $284,000) and the surcharge jumps to roughly $3,000 per person, or $6,000 for a couple.<\/p>\n

The fix is sequencing. If the NQDC plan allows flexibility, elect to receive those distributions before Roth conversions begin, not concurrently. Clear the NQDC income first, then open the conversion window. This requires planning years before retirement, because 409A elections cannot be changed retroactively without severe penalties.<\/p>\n

The Solo 401(k)<\/a> Angle Most Partners Miss<\/p>\n

Many senior partners maintain a small consulting practice: expert witness work, board fees, or advisory retainers paid to an LLC. That self-employment income qualifies for a Solo 401(k), entirely separate from the firm\u2019s plan.<\/p>\n

In 2026, the combined employee and employer contribution limit for a Solo 401(k) is $72,000. A partner between ages 60 and 63 can contribute up to $35,750 as the employee portion alone ($24,500 standard deferral plus the $11,250 SECURE 2.0 super catch-up), with employer profit-sharing contributions layered on top up to the $72,000 ceiling. This can be structured as a Roth Solo 401(k) from day one, bypassing the conversion step entirely. Contributions cannot exceed net self-employment earnings, but for a partner generating $150,000 in consulting fees, this is a legal and underused mechanism to build a parallel Roth balance.<\/p>\n

Three Actions Worth Taking Before Year-End<\/p>\n

Pull your most recent tax return and calculate the gap between your current adjusted gross income and the first IRMAA threshold, projected around $228,000 for married filers in 2026. That gap is your practical conversion ceiling. If NQDC distributions are still running, the ceiling may be zero this year, which means the sequencing problem needs attention before the next 409A election window.
\nReview your NQDC plan document for any remaining election flexibility. Some plans allow distribution acceleration under hardship provisions or changes with a five-year delay. If your NQDC payout will overlap with peak Roth conversion years, a fee-only advisor who specializes in executive compensation can model the exact bracket impact before the window closes.
\nIf you have consulting income flowing through an LLC or sole proprietorship, open a Roth Solo 401(k) before December 31. The plan must be established before year-end to accept contributions for that tax year. The $72,000 ceiling and the super catch-up for ages 60 to 63 make this one of the most tax-efficient contribution strategies available to a high-earning self-employed professional in 2026.<\/p>\n

The partners who retired with no tax bill treated the conversion window as a 15-year project rather than a last-minute maneuver. Letting NQDC distributions land on top of RMDs without a conversion buffer can push a retiree into the 32% or 37% bracket for years, erasing the benefit of decades of tax deferral.<\/p>\n","protected":false},"excerpt":{"rendered":"A 55-year-old equity partner at an AmLaw 100 firm sits on $1.8 million in a traditional 401(k), earns…\n","protected":false},"author":2,"featured_media":357873,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[138,246,111,139,69,244,245],"class_list":{"0":"post-357872","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-new-zealand","11":"tag-newzealand","12":"tag-nz","13":"tag-personal-finance","14":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/357872","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=357872"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/357872\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/357873"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=357872"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=357872"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=357872"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}