Retirement Planning for Law Firm Partners (Beyond a 401(k)
For most employees, retirement planning starts and ends with a 401(k). But for law firm partners—especially those earning well into six or seven figures—the traditional 401(k) plan is only the beginning. Once you’re a partner, you're no longer on payroll, you're no longer eligible for W-2 benefits in the traditional sense, and your income level often exceeds the contribution and deductibility limits of standard retirement accounts.
This shift presents both a challenge and an opportunity. Without proper planning, you may miss out on hundreds of thousands of dollars in potential tax deferral and long-term wealth accumulation. But with the right strategy, you can leverage powerful retirement vehicles that are specifically designed for high-earning professionals and business owners.
This article outlines the key retirement planning tools available to law firm partners—beyond the 401(k)—and explains how to evaluate and implement them based on your firm’s structure and your personal financial goals.
Why Traditional Retirement Planning Falls Short for Partners
Once you become a partner, your compensation is typically reported on a Schedule K-1, not a W-2. That means:
You’re no longer considered an “employee” for retirement plan purposes
You may not be able to contribute to the firm’s standard 401(k) plan
Your income often exceeds IRS thresholds for traditional IRA deductions or Roth IRA eligibility
And even if you can participate in a 401(k), the annual contribution limit—$23,000 in 2024 (or $30,500 if over age 50)—is a small percentage of what you may need to save to maintain your lifestyle in retirement.
For high-income partners, meaningful retirement planning typically requires looking beyond employee-level plans and into owner-level strategies.
Key Retirement Plan Options for Law Firm Partners
Here are the most common and effective retirement savings vehicles available to partners earning K-1 income:
1. Cash Balance Plans
A Cash Balance Plan is a type of defined benefit pension plan that allows for very high, tax-deferred contributions—often in the $100,000 to $300,000+ per year range for older partners.
These plans:
Are employer-sponsored and require firm participation
Define hypothetical “accounts” for each partner
Grow with a combination of firm contributions and guaranteed interest
Can be rolled over into an IRA at retirement
Why it works: Cash balance plans allow for significantly higher contributions than a 401(k) or SEP IRA, especially for partners in their 40s, 50s, or 60s. They’re ideal for maximizing pre-tax savings in high-income years.
Considerations:
Require actuarial setup and annual funding obligations
Typically pooled across multiple partners or senior professionals
Must pass nondiscrimination testing (depending on firm structure)
Action Step: Ask your firm whether a cash balance plan is available—or explore whether one can be established if you're in a smaller or mid-sized firm.
2. Defined Benefit Plans
Similar to cash balance plans, traditional Defined Benefit Plans offer large tax-deferred contributions, but instead of hypothetical accounts, they promise a future pension-like benefit (e.g., $100,000 annually for life starting at age 65).
These plans:
Are often used in conjunction with a 401(k)/profit sharing combo
Allow annual contributions up to $300,000 or more, depending on actuarial calculations
Can be highly effective for partners with stable cash flow and a short time horizon before retirement
Why it works: If you’re 5–10 years from retirement and want to rapidly boost pre-tax savings, a defined benefit plan can allow you to front-load contributions while reducing taxable income during your highest-earning years.
Considerations:
Complex administration
Annual funding requirements based on actuarial projections
May require employer-level participation and trustee coordination
Action Step: Have your advisor model defined benefit contributions under different age and income scenarios to assess suitability.
3. Nonqualified Deferred Compensation Plans (NQDC)
Some larger firms offer deferred compensation programs that allow partners to elect to defer a portion of their income into a future tax year.
Benefits include:
Tax deferral on income you don’t need immediately
Investment growth without current-year taxation
Ability to choose distribution schedules (e.g., 5 years post-retirement, lump sum, installment payments)
Why it works: For partners with substantial cash flow and a long-term horizon, deferring income into future years when tax rates may be lower can result in significant lifetime tax savings.
Considerations:
Plans are often “unfunded” and subject to firm solvency
Distributions are typically irrevocable once elected
No early access or rollovers—decisions must be made carefully
Action Step: Review your firm’s plan documents and compare deferral options against your projected tax brackets and liquidity needs.
4. Solo 401(k) or SEP IRA (for Side Income)
If you earn self-employment income outside the firm—for example, through teaching, writing, consulting, or serving on a board—you may be eligible to set up a Solo 401(k) or SEP IRA for that income.
2024 contribution limits:
Solo 401(k): Up to $66,000 (or $73,500 if over 50)
SEP IRA: Up to 25% of self-employment income, up to the same cap
Why it works: These plans allow you to save additional pre-tax dollars on income not connected to your law firm partnership.
Considerations:
Must have legitimate, documented 1099 income
Cannot use these plans for your main K-1 earnings
Action Step: If you have side income, consult with your CPA about whether you're eligible for these plans—and how they fit into your broader retirement strategy.
5. Backdoor Roth IRA
While high-earning partners often earn too much to contribute directly to a Roth IRA, you may still be able to make an indirect contribution using a backdoor strategy:
Make a nondeductible contribution to a Traditional IRA
Immediately convert to a Roth IRA
Pay tax only on growth, if applicable
Why it works: This allows for after-tax growth and tax-free withdrawals in retirement—even if your income exceeds Roth contribution limits.
Considerations:
You must have no other pre-tax IRA balances to avoid a pro-rata tax hit
Must be coordinated carefully with your CPA to avoid errors
Action Step: If you're not using this strategy already, ask your advisor whether it makes sense as part of your long-term savings plan.
Other Key Considerations
Tax Timing and Bracket Management
As a partner with variable income, managing your tax brackets across years is a crucial component of retirement planning. Some years may be ideal for deferring income; others may be better for Roth conversions or harvesting capital gains.
Action Step: Work with your advisor to project future income and tax scenarios, especially leading into retirement.
Firm Liquidity and Risk
For any plan that is nonqualified or tied to firm assets, your risk exposure increases. Deferred compensation, phantom stock, or supplemental pension arrangements may be at risk if the firm becomes insolvent or changes structure.
Action Step: Diversify your retirement savings outside of firm-controlled assets when possible.
Portability and Vesting
Many plans—especially in larger firms—have vesting schedules or plan rules that apply only if you remain at the firm until retirement. Understand the consequences of leaving the firm before you're fully vested.
Action Step: Review plan documents with your advisor before making large contributions to ensure flexibility in the event of career changes.
Summary: Retirement Plan Options for Law Firm Partners
Plan TypeContribution RangeTax TreatmentBest ForCash Balance Plan$100,000–$300,000+Pre-taxHigh-income, age 45+Defined Benefit PlanVaries by actuarial designPre-taxLate-career partnersDeferred Comp% of income (firm-set)DeferredLiquidity-rich partnersSolo 401(k) / SEPUp to $66,000+Pre-taxSide income onlyBackdoor Roth IRA$6,500–$7,500After-taxLong-term tax-free growth
Final Thoughts
Your retirement as a partner won't be funded by a 401(k alone—and it doesn’t have to be. By taking advantage of advanced retirement strategies tailored to business owners and high-income earners, you can build a much larger, more tax-efficient nest egg.
But the window to act is often short. Cash balance and defined benefit contributions must be set up by year-end. Deferred compensation elections are typically made at the start of the year. Side income plans require entity setup in advance.
The earlier you plan, the more options you have.
Ready to go beyond the 401(k)?
Schedule a consultation with Balanced Capital to design a retirement strategy that fits your partner compensation, tax profile, and long-term goals.