How High Earners Can Build a Strong Retirement with Their 401(k)

Approximately 70 million U.S. workers contribute to a 401(k)-retirement plan. A 401(k) is a tax-advantaged retirement savings plan companies offer employees and is funded through elective salary deferrals. There are several benefits to having a 401(k), and especially if you’re a high earner, it offers a powerful way to build substantial retirement savings. However, there are some pros and cons to consider:

Pros to building a robust 401(k):

Contributions can grow tax-deferred, so max out your account.

When you contribute to a 401(k), any earnings –such as dividends, capital gains and interest—are tax deferred. Tax deferred means you don’t owe income tax on the money until it is withdrawn (generally in retirement, except for special circumstances). In 2026, the contribution ceiling is $24,500, but if you are 50 or older, you can contribute an additional $8,000 in catch-up contributions for a total of $32,500 annually. As a high earner, consider maxing out your contributions if you can.  

Your 401(k) money compounds over time.

Maxing out your 401(k) means having more money sitting in the invested account with each passing year. Employees who participate in a 401(k) may see their interest compound over time—meaning you earn interest not only on your original contributions but also on the interest that has already been added. This snowball effect can potentially lead to exponential growth. Albert Einstein once said, “Compounding is the eighth wonder of the world.” While there are no guarantees as to how much you’ll earn by retirement, a strong possibility exists if you participate meaningfully in a 401(k).

High earners with a 401(k) may be able to do a mega backdoor rollover.

Because of contribution restrictions, high earners are forced to pursue alternative strategies when it comes to saving as much as they may want to  for retirement. If you earn too much to contribute to a Roth IRA, a mega-back door may be your solution, if your employer’s 401(k) plan permits it. This strategy may allow you to save an extra $46,000 into a Roth IRA or Roth 401(k), which you then roll into a mega backdoor Roth. 

Employees can get “free” money if they participate in an employer’s matching program.

A 401(k) match is when your employer adds money to your 401(k) retirement account based on what you contribute. For example, many employers match dollar-for-dollar up to a certain percentage of your salary. The exact structure and amounts depend on your company’s plan, but every dollar you contribute is matched with “free” money toward your future.  

Cons to a 401(k):

You’ll need to stay on top of your required minimum distributions (RMD).

Once you retire and begin accessing the funds in your 401(k), you’ll need to take RMDs once you reach age 73. An RMD is the minimum amount you must withdraw each year, calculated for each retirement account by dividing the prior December 31 balance of that retirement plan account or IRA by a life expectancy factor that the IRS lists in its tables in Publication 590-B. If you reached age 73 in 2025, for example, your first RMD for  must be taken by April 1, 2026.  

There are contribution limits for eligible participants.

In 2026, employees can contribute up to $24,500 or $32,500 if they are 50 and older because of the $8,000 catch-up contribution.  

Highly compensated employees (HCE) are limited in how much they can contribute.

A highly compensated employee may have a restriction on how much they can contribute to their 401(k) if their compensation reaches $350,000, which is the ceiling for a 401(k)-employer match. In 2026, you can be classified as a HCE if you are:

• A corporate officer (for example, a CEO) earning over $225,000 in 2024 for 2025. The 2025 threshold will increase to $230,000 for 2026.
• An owner holding more than 5% interest in the company
• An owner earning over $155,000, not adjusted for inflation, and holding more than 1% interest in the company. For the 2026 plan year, this increases to $160,000.  

There is the possibility of tax liabilities during account conversions.

When considering a mega Roth conversion, you are encouraged to seek the guidance of a financial professional, as your tax bill could be quite large if not set up correctly.

Consult a qualified professional.

Managing your retirement accounts is complex, and making sound, informed decisions is critical to mitigating risk and working to ensure your retirement strategy aligns with your financial goals. Consider consulting a financial professional to review your current strategy. 

Important Disclosures:
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

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