By David L. Dunn, CPA/PFS, CFP®, CPWA®

An executive can spend months negotiating a compensation package and less than ten minutes reviewing the retirement elections that determine how some of that compensation is saved and taxed.

It’s an understandable imbalance.

Between demanding projects, family responsibilities, and year-end deadlines, open enrollment can feel like another administrative task competing for attention.

The familiar approach is tempting. Keep the same 401(k) contribution percentage, confirm the health plan, enter an HSA amount, and move on.

Unfortunately, familiar doesn’t always mean appropriate.

For executives whose compensation includes salary, bonuses, RSUs, and other incentives, annual benefit elections can influence current taxes, retirement savings, liquidity, and future financial flexibility.

A decision that made sense last year may deserve reconsideration after a promotion, compensation change, or shift in family circumstances.

The following five mistakes illustrate why open enrollment deserves more than a quick review of last year’s elections.

Mistake 1: Automatically Renewing Your Pre-Tax or Roth 401(k) Election

One of the most important retirement plan decisions is whether to contribute on a traditional pre-tax or designated Roth basis.

Traditional pre-tax contributions generally reduce current taxable income, while distributions are typically taxable when received.

Designated Roth contributions are made with after-tax dollars. Qualified distributions can generally be received tax-free when applicable requirements are met.

Neither approach is universally preferable.

Consider a hypothetical technology executive who receives a promotion and a substantial increase in annual compensation.

The executive continues making Roth contributions because that election seemed appropriate several years earlier.

However, the combination of salary, bonuses, and vesting equity awards may now create a significantly different tax picture.

A review might reveal reasons to consider pre-tax contributions, Roth contributions, or a combination, depending on the executive’s broader circumstances.

The reverse can also occur.

An executive who automatically selects pre-tax contributions may overlook the potential value of maintaining retirement assets with different future tax characteristics.

Future tax rates and retirement income cannot be predicted with certainty. That uncertainty makes thoughtful planning more important, not less.

The critical mistake: Treating a previous contribution election as a permanent retirement strategy.

The better question is whether today’s election still aligns with current income, anticipated future tax circumstances, and long-term financial goals.

Mistake 2: Overlooking Contribution Timing and Employer Matching Rules

Executives often focus on how much they contribute to a 401(k).

When those contributions occur can matter as well.

Employer matching formulas vary. Some plans calculate matching contributions each payroll period, while others provide an annual true-up, subject to plan provisions.

For employees receiving substantial bonuses or variable compensation, the timing of contributions may affect how the employer match is calculated.

Consider an executive who contributes aggressively early in the year and reaches the annual employee deferral limit before the final payroll periods.

If the employer calculates matching contributions each pay period and doesn’t provide an applicable true-up, the executive could receive less matching compensation than anticipated.

That outcome isn’t inevitable. It depends on the plan’s specific rules.

The important point is that reaching the annual contribution limit doesn’t necessarily mean every aspect of the contribution strategy has been optimized.

Executives should understand the employer’s matching formula, compensation definitions, bonus treatment, and annual contribution limits.

The appropriate contribution schedule also needs to account for household cash flow and other financial commitments.

The critical mistake: Assuming the contribution percentage is the only 401(k) election that deserves attention.

Sometimes, understanding the payroll mechanics can be just as important as selecting the amount.

Mistake 3: Missing Available After-Tax 401(k) Opportunities

Some employer retirement plans permit voluntary after-tax employee contributions beyond regular pre-tax and designated Roth elective deferrals, subject to applicable limits.

When a plan also permits eligible Roth conversions or rollovers, these provisions may create an opportunity commonly called the Mega Backdoor Roth.

For certain highly compensated employees, this can provide an additional way to accumulate retirement assets with Roth tax characteristics.

However, the strategy isn’t available in every plan.

The plan must permit the relevant contributions and transactions. Applicable contribution limits, nondiscrimination testing, distribution rules, and tax consequences also matter.

It’s particularly important to distinguish voluntary after-tax contributions from designated Roth 401(k) contributions.

Although both involve after-tax dollars, they are subject to different rules. Earnings associated with voluntary after-tax contributions may also create tax consequences during a conversion or rollover.

This is an area David Dunn Wealth has explored in greater depth through its Critical Mistakes educational content.

For open enrollment, the immediate question is whether the employer offers the necessary features and whether they merit consideration within the broader retirement strategy.

The critical mistake: Assuming that reaching the regular employee deferral limit means every potential 401(k) contribution opportunity has been exhausted.

The presence of an additional option doesn’t automatically make it appropriate. It does make the plan worth understanding.

Mistake 4: Overlooking the 2026 Roth Catch-Up Contribution Rules

Changes under SECURE 2.0 add another reason to review retirement elections rather than automatically renewing them.

Beginning in 2026, certain participants making catch-up contributions to employer retirement plans must make those contributions on a designated Roth basis when their prior-year FICA wages from the employer sponsoring the plan exceed the applicable indexed threshold.

The requirement doesn’t apply to every higher earner or every participant eligible for catch-up contributions.

Age, prior-year wages, employer arrangements, and applicable plan provisions can affect the result.

For affected executives, the change may alter the current-year tax treatment of catch-up contributions and the amount of take-home pay available after contributions.

Additional catch-up provisions may also apply to certain age groups, subject to applicable requirements.

Consider an executive approaching retirement who has traditionally made pre-tax catch-up contributions.

Continuing to assume the same tax treatment applies in 2026 could produce an unexpected difference in taxable income or payroll withholding.

The solution isn’t necessarily to reduce retirement contributions.

It’s to understand the rules that apply and incorporate them into the broader tax and cash-flow plan.

The critical mistake: Assuming that the rules governing last year’s catch-up contributions remain unchanged.

Open enrollment is an opportunity to confirm both eligibility and the tax treatment of available contribution options.

Mistake 5: Treating HSA and Stock Purchase Elections as Separate Decisions

A 401(k) election rarely exists in isolation.

Executives may also have access to a Health Savings Account and an employee stock purchase plan. Both deserve consideration alongside retirement contributions.

For eligible individuals, HSAs offer tax advantages that can support healthcare expenses and longer-term financial planning.

Eligibility must be confirmed before contributions are made.

Employer HSA contributions count toward the applicable annual contribution limit. Married couples may need to coordinate contributions under family coverage rules, and eligible individuals age 55 or older may qualify for additional catch-up contributions.

A spouse’s general-purpose health FSA can also affect HSA eligibility, depending on the coverage provided.

Consider a hypothetical two-career household. One spouse works for a technology company and enrolls in an HSA-eligible health plan. The other works for an aerospace employer and elects a general-purpose health FSA.

Both decisions may appear reasonable when viewed separately.

However, if the FSA can reimburse the HSA participant’s medical expenses, it may create disqualifying coverage for HSA contribution purposes.

That can turn an ordinary enrollment decision into an unexpected tax-planning problem.

The lesson isn’t that couples should avoid FSAs or HSAs. It’s that the eligibility rules and coverage terms need to be reviewed together.

ESPP elections introduce another consideration.

An employer may offer eligible employees the opportunity to purchase company shares under specified terms, potentially at a discount.

However, an executive who already holds significant RSUs, stock options, or employer shares should consider how additional purchases affect overall employer-stock concentration.

A discount doesn’t eliminate investment risk.

The critical mistake: Maximizing individual benefits without evaluating how the combined elections affect taxes, liquidity, and investment exposure.

The better approach is to consider how the choices fit together within the household’s broader financial plan.

What Executives Should Review Before Open Enrollment Closes

A useful review doesn’t require turning every benefits election into a complicated financial project.

It does require understanding the choices with the greatest potential impact.

Start with the current 401(k) contribution type and percentage. Review applicable annual limits, employer matching provisions, and the treatment of bonus compensation.

Determine whether voluntary after-tax contributions and Roth conversion or rollover features are available.

Confirm whether the 2026 Roth catch-up requirements affect your elections.

Next, review HSA eligibility, employer funding, applicable household contribution limits, and relevant FSA interactions.

If an ESPP is available, evaluate participation alongside existing employer equity exposure and cash-flow needs.

Finally, consider whether compensation changes, retirement timing, or family circumstances have altered the assumptions behind last year’s elections.

An advisor can help coordinate these choices within the broader wealth plan, while tax professionals and employer benefits administrators can address specialized tax and plan questions.

Not every election needs to change.

Every meaningful election deserves to be understood.

The Most Important 401(k) Decision May Happen Before You Invest

Executives devote considerable attention to investment performance, tax planning, and retirement projections.

Those responsibilities matter.

Still, some retirement planning mistakes occur before a single investment is selected.

They happen when contribution types, payroll percentages, and benefit elections are chosen without considering how the decisions work together.

Open enrollment is an opportunity to revisit those choices while changes may still be available.

The objective isn’t to maximize every account or pursue every tax strategy.

It’s to coordinate the opportunities offered through your employer with your broader financial goals.

Sometimes, avoiding a costly mistake begins with questioning a familiar election.

To discuss how your employer retirement benefits fit within your broader financial strategy, schedule a complimentary 30-minute virtual meeting at DAVIDDUNN.COM.

Disclosures

David Dunn Wealth LLC (DDW) is a member firm of The Fiduciary Alliance LLC which is a Securities and Exchange Commission-registered investment adviser. See full disclosure HERE.