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How High-Earning Executives Can Reach Their Most Important Financial Goals

How High-Earning Executives Can Reach Their Most Important Financial Goals

September 30, 2021

It just doesn't make sense to tell the CEO of a company to use a budget worksheet. High-earning tech workers, engineers, and automotive executives face unique financial roadblocks. If you make six figures or more, you need specialized financial strategies in order to maintain your lifestyle through retirement. No amount of whimsical budget tips will help top earners—like the many finance blogs telling you to skip your morning Starbucks and pocket the cash. These saving-shortcut tips just don't apply to highly compensated executives. Instead, we wrote about real strategies that we commonly use with our top clients. We hope this helps you visualize how you can reach your financial goals.

Beware of a Lifestyle Trap

When what once was a luxury now seems like a necessity, you can easily be drawn into lifestyle trap where you spend more as you make more. While it may be tempting to live the high life, just make sure you're still living within your means. (Or at least really think about whether you need that second boat.)

Most people want to maintain their current lifestyle when they retire. This requires almost the same amount of monthly income they enjoyed while they were working — and that comes with similar tax consequences. Here's how you can mitigate those taxes. 

Max out tax-advantaged retirement accounts

Traditional and Roth IRAs

IRAs are a tool that advisors commonly use because they allow retirees to make tax-free withdrawals. However, for high-earners, their income can actually limit them from utilizing certain tax-advantaged retirement savings strategies. To contribute to a Roth IRA in 2021, single tax filers must have a gross income of $140,000 or less. If married and filing jointly, your joint MAGI must be under $208,000 in 2021.A traditional IRA, however, does not have an income limit, which makes it an available option for high earners. 

If your income is within the limit to contribute, an IRA could be a used tool to offset taxes in retirement, depending on your strategy.* Contributions to Traditional and Roth IRAs cap at $6,000 a year, ($7,000 if you're over age 50.)1 That really doesn't amount to much when you make a 6 figure income and want to maintain your lifestyle in retirement. Fortunately there are other ways to maximize your retirement savings. 


Contribute to a 401(k)

Maxing out contributions to a traditional 401(k) is, in general, a good place to start. These accounts don't have an income limit. You may defer up to $19,500 (or $26,000 if you’re 50 or older) of your pre-tax earnings toward your employer-sponsored 401(k) plan.2 As a high earner, your 401(k) will likely offer the highest contribution cap for tax-deferred retirement savings—making it an integral part of your retirement strategy. If your employer offers matching contributions, take advantage of the extra money. 

Just beware of a common problem with investing too much in a 401(k). Many 401(k) investors think that their plan is something that they can just "set and forget." They never look into their asset allocation, which leaves many 401(k) plans too full of their employer's stock, with little diversification. 

Having the right asset allocation is an essential part of getting on track for retirement. There are real consequences to investing too aggressively or holding too much stock in one company. No matter how awesome your employer is, there is always a risk that the stock could tank. You're probably young enough to remember the 2009 Auto Industry bailout, when Ford stock dropped to just a dollar.

Specialized Investment Strategies*

Strategy #1: Roth conversions

Converting some or all of the funds in a Traditional IRA into a Roth IRA is another option. This would mean taking funds from traditional IRAs, paying ordinary income tax on those funds, and rolling them into a Roth IRA. This can make sense particularly if you expect to be in a higher tax bracket in the future and have a long time horizon. Considering that tax rates seem likely to rise for the wealthiest and highest-earning taxpayers under the Biden administration, it may be worth it to talk to a financial professional about the best wealth-protecting strategies.

Strategy #2: The "backdoor" Roth


As mentioned before, the Roth IRA has strict income caps on contributions, making them seemingly off-limits to top executives. As the name suggests, this strategy offers high-income earners a roundabout way to place their after-tax dollars into a Roth IRA account. 

Using this method means opening a traditional IRA, making your desired contribution and then, at a later date, converting the funds to a Roth IRA. The appeal for using this method is this: with a Roth IRA, you don't get an up-front tax deduction (as you do with a traditional IRA, 401(k) retirement plan or other tax-deferred account.)

The name "backdoor" Roth might sound seedy, but the IRS hasn’t weighed in definitively on what’s allowed.3 Still, it’s helpful to understand some of the issues—and it’s highly recommended that you work with a professional accountant, investment professional and/or tax advisor. Experts have mixed opinions on the likelihood of this happening, but the lack of a definitive ruling means there is some risk involved. If restrictions do come into play at some point, they could require backdoor Roth converters to pay a penalty or they might include a grandfather clause. In the meantime, it’s an option to consider.

Strategy #3: 401(k) reallocation

In a recent survey, nearly half of pre-retirees said they had 'no idea' how they were invested.4 No idea! This may seem unimportant, but a big part of getting on track for retirement comes down to your investment strategy. Over time, the difference in performance between funds in your 401(k) account can cause your asset allocation to look very different from your original plan. 

For example, a participant with a 50% stocks / 50% bonds allocation at the start of 1995 would have had a 71% stocks / 29% bonds allocation five years later if left unattended due to strong stock market performance during that period.5 In short, a 401(k) needs to be monitored and updated. While executives are smart and many are capable of handling their investments, they simply don't have time to manage their portfolios. It can be time consuming and frustrating. Given the daily demand for your time, your free time should be spent doing the activities you love with the people you love.

Strategy #4: Have personal investments

Keeping a lot of cash might seem like a safe play, but you need to consider the loss of purchasing power. Inflation can erode even the most well-designed plan. Just this past week, The Fed raised its inflation forecast from 3% to 3.7%, and it doesn't seem to be falling any time soon. Savers need to take on some risk to outpace inflation. Diversifying by owning different kinds of investments (stocks, bonds, cash, commodities) based on your risk tolerance can help reduce risk and is often essential to long-term success. 

Once you’ve maxed out your tax-favored plans, like your 401(k), 403(b) or IRA, you can still spend your money wisely by investing. Sure, you won’t get a tax advantage. But you’re still getting more for your money by growing it instead of letting it gather dust in a checking or savings account! If you need help with your plan, get started with us today!


*The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. This is not an offer to sell securities. The information provided does not constitute and should not replace legal or tax advice. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Specific strategies may or may not be right for you depending on your income level, age, time horizon, existing investments and more. Data contained herein from third-party providers is obtained from what are considered reliable sources. 

Roth IRA conversions require a 5-year holding period before earnings can be withdrawn tax free and subsequent conversions will require their own 5-year holding period. In addition, earnings distributions prior to age 59 1/2 are subject to an early withdrawal penalty.


1. Nerdwallet, 2021

2., 2021

3. Charles Schwab, May 2021

4. Forbes, April 2021

5. Wilmington Trust, 2021