Beyond the 401(k): 3 Advanced Tax-Saving Strategies for High-Income A&D Professionals

If you are a senior program manager or executive in the Aerospace & Defense sector, you likely have a high-class problem.

You have maxed out your pre-tax 401(k). You have paid off your high-interest debt. You have a healthy emergency fund. And yet, you still have excess cash flow hitting your checking account every month… and a massive tax bill to go with it.

Once your household income crosses the $250k or $350k threshold, standard financial advice stops working. Max out your 401(k) is no longer a strategy; it is just a baseline.

To keep more of what you earn, you need to move beyond the basics. Here are three advanced tax-efficiency strategies that are often overlooked by busy professionals.

The Mega Backdoor Roth

This is the heavy artillery of retirement planning. Many A&D 401(k) plans (including those at several major Prime Contractors) have a specific plan feature that allows for this strategy, yet few employees turn it on.

The Concept

The IRS limit for total 401(k) contributions (Employee + Employer) is significantly higher than the pre-tax limit.

If your plan allows After-Tax Contributions (not to be confused with Roth 401k) and In-Plan Conversions, you can potentially contribute significant additional capital into your 401(k) and immediately convert it to Roth.

The Benefit

• You get no tax deduction today (it is after-tax money).
• BUT, that money grows tax-free and comes out tax-free in retirement.
• It effectively supercharges your tax-free bucket far beyond the standard Roth IRA limits.

Warning: This requires precise coordination with your payroll department. If done incorrectly, it can cause tax headaches.

The HSA Stealth IRA

Most people treat their Health Savings Account (HSA) like a debit card: You put money in, you get sick, you spend it.

The Strategy: Stop spending it.

If you have the cash flow to pay for your medical expenses out-of-pocket today, you should leave the HSA funds alone.

Why? The Triple Tax Advantage.

• Tax Deduction: Money goes in pre-tax.
• Tax-Free Growth: You can invest the HSA balance in mutual funds or ETFs.
• Tax-Free Withdrawal: If used for qualified medical expenses, it comes out tax-free.

The Kicker: There is no deadline for reimbursement. You can pay for a surgery today in cash, save the receipt in a digital folder, let the HSA money grow for 20 years, and then reimburse yourself tax-free in retirement when you need the liquidity. It effectively functions as a Medical 401(k) with better tax treatment.

Asset Location Not Allocation

You know about Asset Allocation (Stocks vs. Bonds). But Asset Location is about where you put those assets to minimize tax drag.

The Problem

Bonds and Real Estate Investment Trusts pay interest and dividends that are taxed at your high ordinary income tax rate. Growth stocks are taxed at the lower capital gains rate.

The Strategy

Stop holding the same mix of funds in every account.

• Tax-Deferred Accounts (Traditional IRA/401k): This is the best home for tax-inefficient assets like Bonds or REITs. The high interest payments are shielded from your current high tax bracket.
• Taxable Brokerage Accounts: This is the home for tax-efficient assets like broad-market ETFs or Municipal Bonds. You want assets here that generate minimal dividends and mostly long-term capital gains.
• Roth Accounts: This is for your highest-growth assets (Small Cap, Emerging Markets). You want the asset with the biggest potential pop to be in the bucket where the government gets 0%.

Summary

Earning a high income is great; keeping it is better. By optimizing where you save (Mega Backdoor Roth), how you use benefits (HSA), and where you place investments (Asset Location), you can potentially save tens of thousands of dollars in taxes over your career without earning a penny more.

These strategies require precision. If you want to review your 401(k) Summary Plan Description to see if you are eligible for the Mega Backdoor Roth, let’s look at it together.