Ask a group of accountants why they got into the field, and you’ll probably hear answers like these:
- Career stability
- Above-average wages
- Being able to work in the air conditioning
- Buzzwords and nonsense (including “mental stimulation” or “client service” or “job satisfaction”)
- I like Excel
What you definitely won’t hear listed as reasons for becoming an accountant are things like:
- Lucrative annual bonuses
- Massive starting salaries
- Generous benefits
- Respect
Accountants, and especially those working below the partner level in public accounting, generally don’t make oodles of money. The leverage model basically ensures that until you become an owner of a firm, you’ll be making good-not-great money. Since the partners are the primary beneficiaries of the firm’s residual income (and partners hold immense the power), bonuses tend to be meager for W2 employees. The benefits package offered at most public accounting firms is fine. You’ll have access to decent health insurance, a 401k, paid time off (hopefully not unlimited!), and a smattering of other perks that tend to be cheap and easy for the firm to implement.
All in all, public accounting firms tend to be right about average in terms of pay and benefits when compared to other white collar jobs. The job is too stable to justify the massive salaries of tech, too dependent on stingy clients for the massive bonuses of banking, and too old-school to offer unique benefits.
Where accounting firms do tend to thrive is in making tax-advantaged accounts available to their employees, and providing just enough salary to fully benefit from these accounts. As we mentioned in our Personal Finance Manifesto, we’re not going to go into great detail on what these accounts are. What we will do is examine an case study of freshly promoted senior accountant who can now afford to invest in these accounts.
Background
Our case study follows Senior Sarah, who was promoted to senior associate three months ago. Sarah is 25, single (for tax filing purposes), and lives with a roommate in a mid-size American city. Her finances look like this:
| Senior Sarah | ||
| Savvy Sarah | Oblivious Sarah | |
| Gross Salary | $78,000 | $78,000 |
| 401k Contributions | $23,500 | 0 |
| HSA Contributions | $4,300 | 0 |
| Traditional IRA Contributions | $7,000 | 0 |
| Adjusted Gross Income | $43,200 | $78,000 |
| Effective Tax Rate | 18% | 28% |
| Anticipated Taxes | $7,776 | $21,840 |
| After-Tax Income | $35,424 | $56,160 |
| Annual Investments | $34,800 | $0 |
First, the caveats:
- The maximum amount you can contribute to your 401k in 2025 is $23,500.
- The maximum amount you can contribute to your IRA (Roth or Traditional) in 2025 is $7,000
- If your MAGI is above $79,000, you may only receive a partial tax benefit from your Traditional IRA contribution.
- Sarah’s health insurance includes a high deductible plan with an HSA option. Not everyone will have this option. An FSA is a similar alternative, but it’s “use it or lose it” and your contributed funds can’t be invested, so this doesn’t apply. The maximum amount you can contribute to an HSA is $4,300.
- Tax rates will depend on where you live. We’re assuming Sarah pays state taxes on her income, but not county or municipal taxes.
Analysis
Remember, this is a fictional case study. I’m not suggesting that all new seniors make $78,000 or that everyone can live on $35,000 per year. This is to illustrate the ways you can pay less in taxes and invest more in your future.
We have two Senior Sarahs: The first aggressively invests as much money as she can in tax advantaged accounts, and the second has never heard of tax advantaged accounts. Otherwise, these Sarahs are identical.
The first thing we notice is that Oblivious Sarah takes home over $20,000 more than Savvy Sarah. Tying your money up in investments means there’s less to spend on rent, utilities, and all the fun things that make up your life outside work. Most people will fall on the spectrum between Oblivious Sarah and Savvy Sarah in terms of how much of their income they invest.
The second thing we notice is that Savvy Sarah paid a lot less in taxes. By agreeing to lock her money up in investments, Savvy Sarah only paid a third of the amount that Oblivious Sarah gave to the taxman. Savvy Sarah pulls off a classic delayed gratification win-win: pay less now and have much more later.
The trick behind Savvy Sarah’s financial success is in utilizing the tax advantaged investment vehicles she can access to their full potential. Let’s dig into those vehicles.
401k
We’ve discussed how 401k contribution matching benefits are paltry in many accounting firms, but the amounts you contribute yourself matter. You never lose your own contributions, even if you leave your job. You can invest in a variety of funds, stocks, and bonds to suit your taste (except if the investment would violate your independence!). And every dollar you contribute to a traditional 401k reduces your taxable income by a dollar. By agreeing to invest your money in a 401k, you pay less in taxes, and you get to reap the dividends and growth from your investments. Because a 401k is the “largest” tax-advantaged account—meaning it has the highest contribution limit—maxing it out will provide the biggest tax benefit to you.
For our new investors, please remember to select the investments you’ll purchase with your contributions. When you sign up for your 401k, you’ll tell the administrator (Charles Schwab, Vanguard, Fidelity, etc.) what investments you want to buy with the money you put into your 401k. If you don’t specify any investments, your contributions will usually sit in a money market fund earning an insignificant amount of interest. Make sure you choose your investments! We like ones with low expense ratios so you keep more of your money.
HSA
The HSA is one of the only investment vehicles that has tax deductible contributions, tax-free growth, and tax-free distributions (if your distributions are for medical expenses). What constitutes a “medical expense” is fairly broad. You can even pay for medical expenses out of pocket when you incur them, and then reimburse yourself from the HSA later.
If you have a high deductible healthcare plan with an HSA, it’s worth investing in. This year, you can only contribute $4,300 to an HSA, but it’s an investment vehicle that lets you avoid taxation entirely. Plus, you can invest your contributions in many of the same funds that a 401k offers. Some employers even contribute money to your HSA, just like 401k matching. And like the 401k, your HSA is yours to keep, even if you leave your company. Just look out for those expenses, as HSA administrators usually charge more than 401k administrators.
The IRA
Think of your IRA like a personal 401k. When you leave your company, you can roll your old 401k into an IRA. Like a 401k, IRAs come in two flavors: Roth and Traditional. In addition to acting as a personal bucket for 401k rollovers, you can also contribute directly to your IRA, in the amount of $7,000 per year.
The IRA occupies the middle ground between a 401k and an HSA. It’s not so big that you have to contribute 25% of your income to maximize its potential, but it’s not so small that you overlook its growth. You’re the sole administrator of your IRA, so you can invest in a wider array of securities. An IRA also opens up some pretty crazy investment strategies if the stars align for you.
Closing Thoughts
Once your salary reaches the point where it covers your expenses and provides enough extra cash to invest, it’s wise to utilize these tax advantaged accounts. They are your primary engines in accumulating wealth. Even though it make take years to see significant growth in your investments, time is your best ally in investing. Even if you can only afford to contribute $100 per month to these accounts, your future self will be grateful.
For all its foibles, public accounting does a good job of enabling you to benefit from these tax advantaged accounts. Better still, there’s probably someone at your firm who can walk you through setting up these accounts if you’re unsure where to begin.