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For years, the question of whether to make Roth or pre-tax contributions to your retirement plan has been one of the most common and nuanced conversations in financial planning. But starting January 1, 2026, that decision got a lot more complicated for high earners. If you make $150,000 or more and participate in an employer sponsored 401(k) plan, a new rule is now in effect that changes how you are required to make catch-up contributions. And if you want to handle this strategically, there is more to consider than just checking a box on your HR paperwork.

This article is going to walk you through exactly what changed, how it affects your paycheck and your taxes, and why a combination of a backdoor Roth IRA and an HSA contribution might actually be a smarter path forward than simply doing the Roth catch-up inside your 401(k).

As always, this is not personal financial, tax, or investment advice. The goal is to educate you so you can have better informed conversations with your financial planner.

What Changed in 2026 and Why It Matters

At the end of 2022, Congress passed a sweeping piece of retirement legislation called the SECURE Act 2.0. It included a wide range of provisions affecting retirement accounts, many of which have already taken effect. But one provision was delayed and is now kicking in: starting in 2026, if you are a highly compensated employee earning $150,000 or more and you want to make catch-up contributions to your 401(k), those contributions must be made on a Roth basis.

Here is what that means in practical terms. In 2026, the maximum employee contribution to a 401(k) is $24,500. If you are 50 or older and want to take advantage of the catch-up provision, that adds another $8,000, bringing your total potential contribution to $32,500. Previously, you could choose to make that $8,000 catch-up contribution on a pre-tax basis, meaning it would reduce your taxable income for the year. Under the new rule, if you earn $150,000 or more, that catch-up contribution must go in as Roth, meaning you pay taxes on it now and the money grows tax free for retirement.

This is not necessarily bad news. Roth dollars are powerful. But it does change the cash flow math in a meaningful way, and it raises a question worth exploring carefully: is doing the Roth catch-up inside your 401(k) actually the best use of those dollars, or is there a smarter way to get Roth money into your retirement picture?

The Cash Flow Reality of a Roth Election

Before getting into the alternative strategy, it is important to understand exactly what happens to your paycheck when you make a Roth contribution versus a pre-tax contribution.

Let's use a straightforward example. Assume you earn $150,000 per year, which works out to $12,500 per month. To maximize your $24,500 in employee contributions across 12 months, you would defer approximately $2,041 per month from your paycheck.

With a pre-tax election, that $2,041 comes out before your federal income tax is calculated. So if you are withholding at a 15% federal rate, your tax on the remaining income is lower, and your take home pay reflects that savings.

With a Roth election, the $2,041 still comes out of your paycheck, but now it comes out after taxes have already been applied. That means your taxable income stays higher, your tax withholding is higher, and your net paycheck is smaller.

Running the numbers on the catch-up contribution specifically, the difference between making a Roth catch-up contribution versus a pre-tax one works out to roughly $306 per month, or approximately $3,674 per year in reduced take-home pay. That is real money, and it is a consideration that deserves attention before you simply default to whatever your plan administrator sets as the new standard.

The Backdoor Roth: Getting Roth Dollars a Different Way

Here is the key insight. The goal of making the catch-up contribution on a Roth basis is to add Roth dollars to your retirement picture. That is a worthy goal. But the catch-up contribution inside your 401(k) is not the only way to accomplish it.

For high earners, there is another well-known strategy called the backdoor Roth IRA. It exists precisely because once your income exceeds a certain threshold, you can no longer make a direct contribution to a Roth IRA. In 2025, that income limit for married couples filing jointly was $246,000 adjusted gross income, a number that adjusts for inflation each year. If your household income is well above that, a direct Roth contribution is off the table. The backdoor Roth is how you get in through a different door.

Here is how it works, step by step.

Step one: You make a contribution to a traditional IRA. Because your income is above the deductibility threshold, this contribution is non-deductible, meaning you cannot take a tax deduction for it. It goes in as after-tax money.

Step two: You then convert that traditional IRA balance to a Roth IRA. Because you already paid tax on the contribution, the conversion itself is generally not taxable, provided you do it quickly after the initial contribution. If you wait months or years before converting, any growth that occurred in the traditional IRA during that waiting period would be taxable at conversion. The best practice is to convert very soon after contributing, ideally within days or a few weeks.

There is a tax form involved, IRS Form 8606, which tracks non-deductible IRA contributions and ensures this process is handled correctly on your return. This is something to coordinate with your tax professional to make sure it is filed properly.

For 2026, the IRA contribution limit for individuals over 50 is $8,600, which actually edges out the $8,000 401(k) catch-up amount. This makes the backdoor Roth a compelling alternative on a dollar for dollar basis, and one that comes with additional flexibility that the 401(k) route simply does not offer.

Why the Backdoor Roth Can Be the Smarter Move

So if both strategies result in a similar amount of new Roth money, why would one be better than the other?

The answer comes down to taxes and cash flow flexibility.

When you do the Roth catch-up inside your 401(k), the contribution comes directly out of your paycheck after taxes are withheld. You are locked into that cash flow reduction month after month. There is no flexibility in timing, and you do not receive any additional tax benefit along the way.

When you keep the catch-up contribution as pre-tax inside your 401(k) and instead fund a backdoor Roth IRA from savings, you keep more money in your pocket throughout the year. You can accumulate that extra cash flow and make the backdoor Roth contribution once at the end of the year, or whenever it makes sense for your situation. You decide the timing. You retain the flexibility.

From a tax standpoint, using a real client scenario with a married couple each earning $150,000 (combined $300,000 gross), the numbers illustrate this clearly. Keeping the catch-up pre-tax and pairing it with an HSA contribution (more on that in a moment) can reduce your total tax bill by over $2,200 compared to doing the Roth catch-up inside the plan. Add in the roughly $3,674 in annual cash flow savings from maintaining the pre-tax election, and the combined annual benefit of this approach can be nearly $5,900 kept in your hands throughout the year. That is money you can use to fund the backdoor Roth contribution and potentially still have some left over to direct toward a taxable brokerage account.

The Strategy That Ties It All Together: Add the HSA

There is one more piece to this puzzle that makes the entire approach significantly more powerful, and that is maxing out a Health Savings Account, or HSA.

If you are enrolled in a high deductible health plan and you have a family coverage plan, in 2026 you can contribute up to $8,750 to an HSA. If you are 50 or older, you can add another $1,000 on top of that, bringing the total to $9,750. And critically, this contribution is made on a pre-tax basis, meaning it reduces your taxable income in the year you contribute.

Here is why this matters so much in the context of the catch-up contribution decision. Instead of directing your catch-up dollars into a Roth 401(k) (which provides no additional tax deduction), you keep the 401(k) catch-up pre-tax and simultaneously maximize your HSA contribution. You get a meaningful above-the-line deduction of nearly $9,750 that lowers your taxable income for the year. That combination of pre-tax 401(k) deferral plus HSA contribution puts more money back in your pocket on a monthly basis throughout the year.

That extra cash flow, accumulated over twelve months, can then be used to fund the backdoor Roth IRA. In other words, you are not really giving up Roth dollars. You are just getting them through a more tax efficient path, one that also gives you flexibility in timing and reduces your current year tax bill.

Putting the Full Strategy Together

Here is a summary of the full approach for a high earning couple approaching retirement:

The goal is to arrive at retirement with a diversified mix of account types: pre-tax (traditional 401(k)), tax-free (Roth IRA), and taxable (brokerage). Having all three gives you maximum flexibility in retirement to manage your income, your tax bracket, and your distributions in the most efficient way possible.

Who This Strategy Is Designed For

This is a very specific set of recommendations for a very specific type of person. This approach makes the most sense if you are:

• Earning $150,000 or more as a W2 employee
• Already maximizing (or planning to maximize) your 401(k) employee contributions
• Enrolled in or eligible for a high deductible health plan with access to an HSA
• Within ten years of retirement and focused on building a diversified retirement asset base
• Comfortable managing the annual backdoor Roth process with the help of a financial planner and tax professional

If you are only contributing a small percentage of your salary to your 401(k), the catch-up provision is not yet in play for you. But if you are a dedicated saver who is trying to squeeze every dollar of tax efficiency out of the years leading up to retirement, this layered approach deserves serious consideration.

The Bottom Line

The new 2026 rule requiring Roth treatment for catch-up contributions among high earners is not something to panic about. It is an opportunity to be intentional about how and where your Roth dollars are being built.

Rather than defaulting to the Roth catch-up inside your 401(k) and accepting the reduced monthly paycheck, consider keeping your 401(k) contributions on a pre-tax basis, maximizing your HSA, and using the resulting cash flow savings to fund a backdoor Roth IRA on your own schedule. The end result is more Roth money, a lower current year tax bill, and more flexibility in how you manage your finances throughout the year.

As always, everyone's situation is different. The numbers used here are illustrative, not prescriptive. But the underlying principle is worth exploring with a financial planner who can run your specific numbers and help you decide which path makes the most sense for your retirement plan.

This article is for educational purposes only and is not intended to be personal financial, tax, or investment advice. Please consult a qualified financial professional before making any decisions based on the information presented here.

Forest Dutton, CFP®, MSFP, MBA is the owner of Brightworks Financial Planning.