How Top Law Firms Build a Debt Bill Beyond the Tax Bill

The 55-year-old partner at an AmLaw 100 firm sits on $1.8 million in a 401(k), earns $800,000 a year, and has been putting money into a Partial Repayment plan for a decade. On paper, the retirement picture looks simple, but a deferred tax liability of hundreds of thousands of dollars is piling up in the 401(k).

Every dollar in the 401(k) is tax-free, and while the Minimum Required Contributions start at 75 if you turn 73 after January 1, 2033, the IRS will enforce the deduction whether the spouse needs the money or not. At the rate of $1.8 million growing over 18 years, those RMDs can push the taxable income above $200,000 a year when the spouse has no deductions left to deduct. Stacked on top of the National Income Tax and NQDC allocation, the result is a competitive tax rate for working years.

Paying taxes now at a known rate is better than paying later at an unknown rate. A structured Roth conversion plan that is used over the next 15 years, limited to a maximum of 24% of the federal bracket, is a way to do that.

24% Bracket as a Conversion Target

For married couples filing jointly in 2026, the 24% bracket ranges from $211,401 to $403,550. A partner who has retired or returned to a consulting position with a reduced income has a transition window: the gap between their current taxable income and the top 24% is the threshold for how much they can change in a year.

But the biggest obstacle is usually IRMAA. If the early retirement spouse’s taxable income is $180,000 from the NQDC contribution and the interim settlement, adding the change will raise MAGI. The first IRMAA premium for a married couple is about $218,000 (which changes annually), with premiums increasing at higher levels. Many retirees change their first or second IRMAA balances instead of being in the top 24% bracket to avoid thousands of dollars in annual Medicare premiums.

Within those limits, every dollar converted costs 24 cents in federal taxes (plus any state taxes) and permanently subtracts that amount from the RMD amount. Repeat this for 10 to 15 years, and the 401(k) shrinks to a manageable size before RMDs kick in.

The NQDC Sequence Problem

Law firm partners face a problem that most retirement guides ignore. NQDC plans, governed by IRC Section 409A, require that distribution period elections be made years in advance. A spouse who elects to receive deferred compensation within five years of retirement will receive the accumulated amount on any Roth conversions attempted during the same years.

If the NQDC distribution adds $200,000 per year to income during the transition window, the spouse may not have room left in the 24% bracket for transitions. Combined income above the original IRMAA threshold, estimated at $228,000 for married filers in 2026, triggers Medicare payments under the two-year look-back rule. In Tier 1, about $1,200 per person per year, or about $2,400 for a couple. Raise the income above the second quarter (estimated at $284,000) and the fee rises to $3,000 per person, or $6,000 for a couple.

Editing is a sequence. If the NQDC plan allows for conversions, choose to receive those gains before the Roth conversions begin, rather than at the same time. Clear the NQDC amount first, then open the conversion window. This requires planning years before retirement, because 409A elections cannot be changed later without severe penalties.

The Solo 401(k) Angle Most Partners Miss

Most senior partners maintain a small consulting practice: expert witness work, board fees, or paid consulting to the LLC. That self-employment income qualifies for a Solo 401(k), completely separate from the company plan.

In 2026, the combined employee and employer contribution limit for a Solo 401(k) is $72,000. A spouse between the ages of 60 and 63 can contribute up to $35,750 as a single employee ($24,500 standard return plus $11,250 SECURE 2.0 super catch-up), with the employer’s profit-sharing contribution up to a ceiling of $72,000. This can be set up like a Roth Solo 401(k) from day one, bypassing the conversion phase entirely. Contributions cannot exceed the employee’s salary, but for a spouse who generates $150,000 in consulting fees, this is a legal and underutilized way to build a matching Roth balance.

Three Steps to Take Before the Last Year

1. Pull your most recent tax return and calculate the gap between your most recent income and the original IRMAA limit, which is estimated at $228,000 for married filers in 2026. That gap is your effective transition ceiling. If the NQDC allocation is still in effect, the ceiling is likely to be zero this year, meaning the sequencing problem needs attention before the upcoming 409A election window.
2. Review your NQDC planning document for any remaining elective positions. Some plans allow acceleration of distributions under provisions for difficulties or changes with a delay of five years. If your NQDC payout will span multiple Roth conversion years, only an executive compensation advisor can model the correct bracketing effect before the window closes.
3. If you have discretionary income flowing through an LLC or sole proprietorship, open a Roth Solo 401(k) before December 31. The plan must be established before the end of the year to receive contributions for that tax year. The $72,000 ceiling and maximum catch-up for ages 60 to 63 make this one of the most tax-efficient strategies available to the high-income professional in 2026.

Partners who retired without a tax credit viewed the transition window as a 15-year plan rather than a last resort. Letting NQDC gains sit above RMDs without rollover protection could push a retiree into the 32% or 37% bracket over the years, wiping out decades of tax-deferral benefits.