What is the total compensation at your accounting job? It goes beyond your salary.
One benefit of working for an employer is…you guessed it, the benefits! What do we mean by that?
Accounting firms often pay the following on behalf of their full-time professionals and some of their key part-time professionals:
- Medical insurance premiums
- Paid Time Off
- Paid Holidays
- Reimbursed business expenses
- Professional membership dues
- Paid family leave
- CPA licensing and educational reimbursements
- Short-term disability and long-term life insurance
These benefits can amount to tens of thousands of dollars beyond your salary. Plus, most firms also offer one more big benefit: a retirement plan.
If you are a new graduate or young professional, you might think, ‘Why do I need a retirement plan now?’ It might seem better to skip the retirement plan and take home more money in your paycheck.
However, the value of these plans is two-fold. First, find out if the firm offers a matching contribution, on average 1 to 3 percent, of your personal, monthly retirement plan contribution. Any financial advisor will tell you that an employer match toward retirement is like free money put into your retirement. It also adds to your total compensation.
The second value of contributing to an employer-sponsored retirement plan is that it can reduce your taxable income. With a Simple IRA plan or a 401(k) plan, you can contribute to the plan with pre-tax dollars. In addition, any employer match to your plan is not subject to certain taxes.
Are Retirement Contributions Portable?
Unlike your health care benefits and paid time off, the contributions and matches to your retirement plan go with you if you leave a firm. Whether you have an employer-sponsored 401(k) plan or a Simple IRA plan, you can roll your investments into a new IRA when you leave an employer. Managed properly, that money continues to grow for your retirement.
Once you join another firm, you can enroll in their employer-sponsored plan, according to the firm’s policy.
If you work at several firms during your accounting career, you will eventually want to simplify your retirement savings vehicles. For example, a traditional IRA plan can rollover into another traditional IRA. A 401(k) plan will require a conversion to a traditional or Roth IRA.
Be careful when moving funds from your employer plan into a Roth IRA. This will trigger a taxable event on the entire invested amount in the year it was converted. So if you have accumulated substantial savings in your 401(k) plan, be careful about which vehicle you choose for a rollover or conversion to avoid unnecessary taxes.
When Should You Work With a Financial Advisor?
As your retirement planning becomes more complex — you get married, have kids, change jobs — working with an investment advisor or Certified Financial Planner (CFP®) can help you lower risk, save more and improve your tax situation.
Some advisors such as a CFP can help you build a budget and model some retirement scenarios to determine how much money you need in retirement. They also advise on how to diversify your portfolio to lower your risk during changing economic phases.
If all of this sounds complex, it doesn’t have to be. Remember that a CPA who advises on wealth management can coordinate your tax strategy with your personal financial advisor. Accountants need financial and retirement advisors, too. It makes sense and more than cents to plan for your future with professional help.
