Tax-Efficient Structuring of Earnings and Compensation
Strategies for high earners to reduce the tax drag on income through retirement contributions, deferred compensation, and thoughtful location of earnings.
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For clients in higher tax brackets, the difference between pre-tax and after-tax earnings can be substantial. Tax-efficient structuring of compensation and income is therefore a core component of wealth accumulation.
Maximizing Retirement Contributions
Maximizing contributions to pre-tax retirement accounts (401(k), 403(b), governmental 457(b)) reduces current taxable income. For 2026, the employee deferral limit is $24,500, with an additional $8,000 catch-up for those age 50 and older (and a higher $11,250 catch-up for ages 60–63 in plans that allow it). High earners whose prior-year FICA wages exceeded $150,000 must make catch-up contributions on a Roth basis under SECURE 2.0 rules beginning in 2026.
Deferred Compensation and HSAs
Non-qualified deferred compensation plans, when available, allow further deferral beyond qualified-plan limits. Health Savings Accounts (HSAs), for those eligible, offer triple tax advantages. For business owners, retirement plan design (Solo 401(k), cash-balance plans, defined-benefit plans) can shelter significantly more income.
Income Location and Timing
The location of income also matters. Income earned in lower-tax states, or structured through entities that allow reasonable income shifting within legal bounds, can improve after-tax results. Equity compensation timing—deciding when to exercise options or sell vested shares—interacts with ordinary-income versus capital-gains rates and with the rest of the tax picture in a given year.
An integrated approach coordinated between the asset management advisor, tax professional, and compensation specialist helps high earners keep more of what they make and deploy it more effectively toward long-term goals.
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