Cash Balance Plans Let 401(k) Holders Defer $300,000 Annually. Most Never Find Out.

A 49-year-old equity partner at an Am Law 100 firm pulls down $1.2 million in K-1 income, and the December distribution lands her squarely in the 37% federal bracket. She has already maxed the firm’s 401(k) at $24,500. The question she asked in a recent Bogleheads thread: is there anything else inside the plan that can absorb the bonus before the IRS takes nearly half?

There is. And it is the same machinery senior partners at Kirkland, Latham, and Skadden quietly use every year.

The Three-Layer Stack Hiding in the Plan Document

Most partners think of the 401(k) as a single bucket capped near the elective deferral limit. Big Law plans typically run three buckets stacked on top of each other, and the bonus can be routed through all three.

The first layer is the elective deferral, already maxed in this scenario at $24,500. The second is the after-tax (non-Roth) bucket, which fills the gap up to the $72,000 section 415(c) annual additions limit minus elective deferrals and any firm contribution. For a partner whose firm makes a modest profit-sharing contribution, that leaves roughly $40,000 to $45,000 of after-tax headroom. Convert it in-plan to Roth the same pay period and the growth is tax-free forever, no income limits, no backdoor IRA gymnastics.

The third layer is the one that actually moves the needle: a firm-sponsored Cash Balance Plan bolted on top of the 401(k). Because contributions are actuarially determined by age and compensation, a partner in her late 40s can defer $200,000 to $300,000 of pre-tax dollars into it. Senior partners in their late 50s often clear $300,000.

The Math on a $250,000 Shelter

Stack all three and the total bonus shelter lands at roughly $250,000 to $340,000. At a 37% federal rate plus roughly 10% state (call it New York or California), sheltering $250,000 produces $117,500 of immediate tax savings. That is real money she keeps, deferred into accounts that grow without annual drag.

The opportunity cost matters less than usual right now. With the Fed funds upper bound near 4% and the 10-year Treasury near 4%, the after-tax alternative (taxable brokerage in T-bills) yields about half what it did a year ago after the 37% haircut. Meanwhile CPI running above the Fed’s 2% target erodes any cash sitting on the sidelines. Tax-deferred compounding wins the comparison decisively.

Why Most Partners Miss This

Two reasons. First, the after-tax bucket is buried in the summary plan description and not in the open-enrollment portal. HR almost never volunteers it. Second, Cash Balance Plans require an actuary to certify each partner’s contribution every year, so the firm sets a fixed window (usually October or November) for partners to elect in. Miss the window and the entire shelter is gone for that tax year.

The savings rate data tells you partners are leaving this on the table. The personal savings rate has fallen from 6% in Q1 2024 to 4% in Q1 2026 even as per capita disposable income climbed from $63,638 to $68,617. Higher earners are spending the raise instead of sheltering it.

What to Do Before the December Distribution

1. Pull the plan document, not the summary. Confirm three features in writing: after-tax employee contributions, in-plan Roth conversion (sometimes called "in-plan Roth rollover"), and a companion Cash Balance Plan. If any of the three is missing, the shelter shrinks materially. The plan document is the authority here.
2. Time the after-tax contribution to the bonus payroll run. Elect the after-tax percentage high enough that the December distribution fills the remaining 415(c) headroom in a single payroll, then trigger the in-plan Roth conversion the same week to keep earnings from being taxed at conversion.
3. Get the Cash Balance election in before the firm’s actuarial cutoff. Ask the firm’s plan administrator for the exact contribution range certified for your age band this year, and elect the top of the range if the bonus puts you in the 37% bracket. Review it annually because the actuarial number changes with age and compensation.

The partners getting the full $117,500 back simply read the plan document.