"Most employer 401(k) plans allow mid-year changes to the deferral election percentage. Before the bonus pay period, raise the deferral rate high enough to funnel as much of the bonus as possible into the 401(k), up to the annual limit."
"For 2026, the IRS elective deferral limit is $24,500, and executives aged 50 to 59 and 64 or older can add a catch-up contribution of $8,000, bringing the total to $32,500."
"Deferring $35,750 at a marginal rate of 35% keeps roughly $12,500 out of federal income tax for that year, while the money continues compounding inside the plan."
"The election to defer it must be made in the year before the bonus is earned, which is a deadline that most executives miss."
Executives earning significant bonuses can manage their tax liabilities by utilizing 401(k) plans and Nonqualified Deferred Compensation (NQDC) plans. By adjusting the deferral rate before receiving a bonus, executives can funnel a substantial portion into their 401(k) up to the annual limit. For 2026, the elective deferral limit is $24,500, with additional catch-up contributions available for older executives. NQDC plans allow for deferring the entire bonus amount, but elections must be made in the year prior to earning the bonus, which many executives overlook.
Read at 24/7 Wall St.
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