Career Tips for New College Graduates


Many college graduates will soon begin their first career jobs. Graduates will also begin to become more financially independent. The Virginia Society of CPAs (VSCPA) provides these tips to help new graduates understand salary, retirement and health insurance. 

Salary and taxes

While many graduates may have had jobs in the past, their first job out of college may be the first time they are exposed to a higher salary and fringe benefits. Higher salaries will mean not only more taxes taken out in absolute dollar amounts, but income taxes may come out as a greater percentage of gross income. This is due to being in a higher marginal tax bracket. 

It is important to look at pay stubs and understand the taxes taken out. Social Security and Medicare taxes are for future benefits, such as retirement, disability and medical insurance. Current taxes pay for current benefit recipients. Federal and state income taxes are used to fund government programs and services. The graduate can look at net “take home pay” and divide into gross pay to see what percentage of gross pay is received. At higher income levels it can be as little as 60 percent of gross pay. This is the money needed as a base for budgeting living expenses.

The importance of retirement savings

The first career job is an excellent time to begin planning for retirement through an employer pension plan. Most employer pension plans are referred to as “defined contribution plans” in which the employee provides contributions and the employer provides some type of match. These plans are referred to as 401(k) plans, 403(b) plans or 457 plans, based upon the type of employer. 

Contributions to these plans come out pre-tax, which means the graduate will save money on state and federal income taxes. Also, the earnings accumulate tax free until the money is taken out for retirement. The average new college graduate salary is $49,000 which corresponds to a 25 percent marginal federal tax bracket. This means that for every $1,000 contributed to these plans, the graduate will save $250 in federal income taxes. 

While retirement may seem a distant dream for the college graduate, small steps in setting aside money for retirement in early years can make a big difference in retirement savings due to compound interest. In addition, not making any contributions may mean giving up “free money” in terms of employer match. The college graduate may not be able to contribute the maximum amount which is $16,500 in 2010, but he or she should contribute as much as possible.

New health care law 

The other big benefit the new graduate may see for the first time is health insurance. Most companies pay a portion of health insurance costs. Effective September 23, 2010, the new health care law called the Patient Protection and Affordable Care Act, allows persons younger than 26 to be on their parent’s  policies before 2014 only if they do not have group health through their employers.

After 2014 graduates younger than 26 can choose to use their company’s health insurance or their parent’s health plan. The penalties for individuals not having health insurance goes into affect on January 1, 2014. Even through graduates may think they are healthy and do not need health insurance, it can never be predicted when a devastating medical event, such as cancer or surgery, can occur. Plus, the associated medical costs can be enormous. Health insurance is a fringe benefit the new graduate needs.

Your CPA can help

As you start your adult financial life, it’s a good idea to get to know your local CPA. He or she can help you understand your choices and make the best decisions for your financial future.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has 9,000 members who work in public accounting, industry, government and education. For general information, please visit the Press Room on the VSCPA website at www.vscpa.com, e-mail vscpa@vscpa.com or call (804) 612-9424. To search for a CPA in your geographic region, visit www.financialfitness.org and click on “Find a CPA.”

Copyright 2010 American Institute of Certified Public Accountants. 360 Degrees of Financial Literacy

LAST UPDATED 5/31/2010

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