A complete guide to SEP IRAs: Why those who are self-employed should take a look
A SEP IRA is a tax-advantaged retirement account that's an especially attractive option for workers who don't have access to an employer-sponsored plan.
The annual contribution limits for an SEP IRA are significantly higher than those of traditional and Roth IRAs.
A SEP IRA could be an ideal retirement plan if you own your own business and don't hire other employees.
About 16.5 million people in the U.S. are self-employed, according to 2023 data from the Bureau of Labor Statistics. For many of these workers, planning for retirement has its own quirks and challenges. They can't rely on a company for a retirement plan, and the modest contribution limit for a traditional or Roth IRA just isn't going to cut it.
Rather than run the risk of having a lower standard of living in retirement, self-employed workers do have other savings options to boost the size of their retirement nest egg, including the SEP IRA.
With a higher contribution maximum and a lot of flexibility, the SEP IRA might be the retirement plan that best suits many self-employed workers.
A SEP IRA, or Simplified Employee Pension Individual Retirement Account, has many features similar to an IRA, but comes with a few extra perks that make it especially desirable for those without an employer-sponsored plan. A SEP IRA is a tax-advantaged retirement plan for anyone who is self-employed, owns a business, employs others, or earns freelance income. SEP IRA contributions are considered employer contributions, so the business makes them to the employee (which may be you).
The SEP IRA is designed for simplicity — especially if you own your own business and don't hire other employees.
Make tax-deductible (traditional) or after-tax (Roth) retirement contributions as a self-employed person
Contribute the lesser of 25 percent of your income or $70,000 in 2025
Easy to open with an account provider
Must contribute an equal percentage of compensation for any employees
First of all, rather than limiting your annual IRA contributions to $7,000 — the maximum that workers under age 50 can contribute to traditional and Roth plans in 2025 — SEP IRAs allow a company to contribute up to the lesser of 25 percent of your compensation or $70,000 in 2025. For workers who double as their own bosses, this also provides an opportunity to set aside more than they could in an employer's 401(k), which caps 2025 employee contributions at $23,500.
The SEP IRA is subject to the same investment, distribution and rollover rules as IRAs, according to the IRS.
Traditional SEP IRA: While you can take distributions from your SEP IRA at any time, withdrawals before the age of 59 ½ will be included in your taxable income and may be subject to a 10 percent tax penalty. Additionally, the IRS requires you to take required minimum distributions in the year you turn age 73, as you would with a traditional IRA.
Roth SEP IRA: The Roth SEP IRA was created in 2023, as part of the SECURE Act 2.0. You may take out contributions at any point without tax or penalty, since you've already paid tax on the money. But any earnings withdrawn before the age of 59 ½ are subject to a 10 percent tax penalty. There are no required minimum distributions on Roth accounts.
You're eligible to contribute to a SEP IRA if you're self-employed — even if you have other retirement accounts. If your business is a side hustle and you still have a regular employer, you can open a separate SEP IRA and contribute, while still socking money away in a 401(k) with that employer. Plus, a SEP IRA is different from an IRA, so you can contribute to both.
'For the self-employed individual, [a SEP IRA is] really an easy and cost-effective way to save a decent-sized chunk of money into a retirement plan,' says Tim Steffen, director of advanced planning at Baird, a financial advisor.
Realize, though, that if you end up hiring people, the SEP IRA must treat them the same as you. If you contribute a large percentage of your earnings to a SEP IRA, you'll have to contribute that same percentage of your employees' income to their own retirement accounts. Qualified workers who need to receive the same percentage from your employer contribution as you do include those who:
Are at least 21 years old
Earn more than $750 annually
Have worked in your business three out of the last five years
Keep that in mind as you move forward. For some business owners, a SIMPLE IRA might offer a better solution.
If you open a SEP IRA at a brokerage, the account allows you to invest in potentially high-return assets such as stocks and stock funds. But you'll also be able to invest in a whole range of securities offered by the brokerage, including bonds, options and more.
The contribution limit for a SEP IRA for 2025 is straightforward. Your maximum contribution is the lesser of:
25 percent of the employee's compensation
$70,000
Remember, the SEP IRA is an employer contribution (not an employee contribution), so it's made by the company rather than the individual worker. There are no catch-up provisions for older workers in SEP IRAs.
The SEP IRA is a popular retirement plan for the self-employed because it offers many useful advantages, but it's not the perfect plan for everyone.
Provides a way for you to save for retirement: If you're self-employed, you might not have many options for tax-advantaged retirement savings, and the SEP IRA can help.
Tax-deferred or tax-free: You can choose to contribute on pre-tax basis (traditional) or after-tax basis (Roth), meaning your money will not be taxed until withdrawn or it will come out entirely tax-free, depending on which plan type you choose.
Easy to set up: A broker offering SEP IRAs can guide you through a few simple steps after you fill out one IRS form.
Make bigger contributions: Contribution limits are higher than traditional and Roth IRAs, as well as more than what you can contribute to a 401(k) at a typical employer, though a solo 401(k) may let you save even more.
Flexibility: You don't have to contribute every year, whether for yourself or your employees.
Employees must be treated the same as you: This is an employer-only contribution. Employees don't make their own contributions and you must contribute the same percentage of employee compensation as you do to your own SEP account.
No catch-up contributions: If you're over the age of 50, there are no catch-up contributions like you see with IRAs and 401(k)s. However, the higher contribution limits of a SEP IRA might outweigh this negative.
The SEP IRA is a popular retirement account, and those who have the option for a SEP IRA may also be considering a 401(k) or a Roth IRA account. Here are some of the key differences:A SEP IRA is available only if your employer offers it, and in some cases, the employer may be you. If you're a single freelancer, the account allows you to stash as much as 25 percent of your company's earnings in your account tax-deferred, up to an annual maximum of $70,000 in 2025. The account's distribution rules are like those of a traditional IRA or Roth IRA, depending on which type of plan you've selected.A 401(k) is an employer-sponsored retirement plan that lets you save money on a tax-deferred or tax-free basis. Employees can save up to $23,500 in 2025, and employers may add matching funds into the account as well. The account comes in two major varieties: the (pretax) traditional 401(k) or the (after-tax) Roth 401(k). One-person businesses may also open a solo 401(k) and save even more.A Roth IRA allows anyone with earned income (or even spouses of those with earned income) to contribute. Contributions are made with after-tax money, and you'll be able to grow the account tax-free and then withdraw your money tax-free in retirement. Annual contributions are limited to $7,000 in 2025.
The good news is that you can contribute to all these plans. However, your maximum contribution to the SEP IRA and the 401(k) together is $70,000 in 2025, including both employer and employee contributions. You can max out your employee contribution in the 401(k) at your day job, taking full advantage of an employer match there, and then still add money to your SEP IRA, until you hit the annual maximum.
And regardless of how much you contribute to either a 401(k) or a SEP IRA, you're still able to contribute to a Roth IRA (or a traditional IRA), up to the annual maximum.
Setting up a SEP IRA is simple. Start by filling out and filing IRS Form 5305-SEP. Rather than sending the form to the IRS on your own, you can use a broker like Fidelity Investments or Vanguard to sign up and provide the form for you.
Compare SEP IRA custodians before making your choice, though. Review minimum investments, fees and investment options offered. Find out how other employees can access their accounts as well, should you choose to add employees.
Remember: Your SEP IRA is a type of retirement account, not an actual investment. As with any investment account, how aggressively you invest and the types of assets you buy depends on your age, the age at which you plan to retire and your risk tolerance. Carefully consider your own future needs as you choose investments for your portfolio.
In general, asset allocation models suggest that you weight your retirement portfolio toward stocks while you're young and further away from retirement. As you move closer to retirement, many experts suggest reducing the risk level of your portfolio and boosting its income component by rebalancing it to include more bonds. The reason? Stocks historically have generated bigger returns over the long term than fixed income assets, but suffer more price volatility in the short term.
Your account provider should have a variety of stocks, ETFs, bonds and mutual funds to choose from. Each of your employees should have their own accounts with the provider so they can choose their own investments and asset allocation.
If you're self-employed and looking for a way to contribute to a tax-advantaged retirement plan, a SEP IRA can be a good option. It offers you the chance to contribute a hefty sum each year and have your savings grow tax-deferred or even tax-free. A SEP IRA can be especially useful if you don't have any other employees (and don't plan to hire them in the future)..
— Bankrate's Erin Kennedy contributed to an update of this article.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Insider
15 minutes ago
- Business Insider
How I quit my daily Starbucks habit that cost me $5,000 a year
For years, the single most important thing I could never do without in the mornings was a Starbucks macchiato espresso and a blueberry muffin. Every morning at 7:30 a.m., including weekends, I'd rush out the door with a half-done tie and a productivity podcast playing through my earbuds. I'd speed walk to make it to Starbucks before the line was too long. I became popular in the joint, and sometimes the servers would start my coffee order as soon as I walked through the door. No matter the chaos in my life, I always looked forward to Starbucks. My coffee delight didn't come cheap At $5 per cup and $3.95 for the muffin, I was spending about $63 the entire week on these Starbucks delicacies, give or take one rare Sunday when I'd sleep in. Every month, I was down $241 on coffee and muffins, and that was on the lower end. Throw in an iced latte or two every other evening, the occasional banana bread upsell, other friendly yet costly coffee meet-ups with friends, and we were talking close to $5,000 annually. The worst part is that I owned several functional coffee makers, including a French Press and a drip. They were gathering dust and judgment on my kitchen counter. Eventually, a combination of guilt and self-reflection changed my perspective, and I thought I would have been better off if I had saved the money. I've always had an annual personal saving goal of $6,000 to $7,000 that I hardly ever met, and I realized that if I could cut down my Starbucks expenses, I would come very close to attaining the goal. Plus, after much reflection, I found that it wasn't even Starbucks that had me hooked. It was the 10-minute walk that made me feel awake, excited, indulgent, and maybe a little bit seen. I figured if I could recreate these feelings, maybe I would bring my coffee makers out of retirement and keep my money in my wallet. As 2024 rolled in, I resolved to make my coffee at home to cut costs, and I've stuck to my guns. Here's how I did it. Step 1: I did the math and felt the pain I created a spreadsheet to tally all of Starbucks' receipts over a few months. I had figures like $240 in August, $300 in September, and so forth. In one brutal month, I spent $410. When I saw the totals adding up, my stomach churned. It was enough to put into a Roth IRA or spend on a vacation ticket to destinations I wanted to visit. There was something sobering about how much I was paying for a 15-minute delight. So I started thinking about what else the money would do for me. Step 2: I turned my kitchen corner into a coffee shrine I wanted a dedicated coffee shrine that would mimic the Starbucks ambiance. I cleaned my coffee makers, purchased nice mugs, takeout cups, and bought bougie beans. I went a step further to look up my favorite Starbucks coffee recipes on TikTok to ensure I had everything I needed. I didn't just want to make coffee, I wanted to stage it, and the kitchen corner felt like an upgrade. Step 3: I made it emotional I still battled with the Starbucks urges time and again. However, when I faced the urges, I jotted on my phone exactly what I was craving: was it a reward, comfort, or just the need to escape from morning meetings? I always wrote what mattered: "This $5 coffee will buy me 15 minutes of delight, and that will be $5 less toward my savings goal." It automatically made me rethink the transaction. Step 4: I strived for better mornings, not just cheaper ones I didn't want to give up my blueberry muffins. My wife looked up a couple of recipes, not only with blueberries but also banana oat bars and cinnamon. She made delicious choices most mornings and breakfast sandwiches on others. I had great food options, top-notch coffee beans, and extra time to spend with the family as I wasn't rushing to beat the line. It felt peaceful. The final step: I found accountability and have some fun To make it stick, I invite some of my friends to do weekly "coffee reset challenges", where they share their latest coffee finds and we even take pictures of our home brews to crown a winner. What I spend today I buy my favorite coffee beans at $12 a bag, which lasts two weeks. We also opt for homemade blueberry muffins, which makes my coffee ritual very affordable. And after throwing in other spontaneous trips I would make to the coffee shop and everything else I would buy, I significantly cut costs. I didn't quit Starbucks to be virtuous. I stopped because I could save the money and put it towards the future. I no longer miss it as much because I realized it was not really about the caffeine. I was looking for comfort and moments of peace, things that I now find at home with my family.
Yahoo
4 hours ago
- Yahoo
Mortgage interest tax deduction: How it works and when it makes sense
When you file your income tax returns each year, the mortgage interest deduction (MID) can be one of the most valuable benefits of homeownership. Or it can be worthless. That contradiction exists because the value of the MID depends on whether your itemized deductions exceed the standard deduction, and that depends on how much mortgage interest you paid during the year, your other deductions, and your standard deduction for your filing status and the tax year. Sounds complicated? Well, it is. This embedded content is not available in your region. Dig deeper: What is mortgage interest? In this article: Is mortgage interest tax deductible? How to claim the home mortgage interest deduction Should you buy a home to get the mortgage interest deduction? FAQs Mortgage interest is generally tax deductible. However, you should be aware of some important rules, limits, and exclusions before you claim this deduction on your tax returns. The federal Tax Cuts and Jobs Act of 2017 (TCJA) limited the MID to interest paid for the first $750,000 of mortgage debt for loans originated after Dec. 15, 2017. Previously, the limit was $1 million of mortgage debt. For married couples filing separately, those limits are cut in half. The TCJA continued to allow mortgage interest for both a primary residence and a second home to be deducted, but the new law excluded interest paid for home equity loans or home equity lines of credit (HELOCs) unless the funds were used to build, buy, or make significant improvements to the home that secures the loan. Previously, interest paid for up to $100,000 of home equity debt could be deducted regardless of how the funds were used. The previous rules are still important because the TCJA is scheduled to sunset at the end of 2025. After the 2025 tax year, the previous rules will again be in effect unless Congress extends the TCJA MID provisions or makes other changes to the MID. To claim the MID, you'll have to itemize your deductions on your tax returns. Itemizing can be complicated and generally makes sense only if your deductions exceed your standard deduction, which is available if you choose not to itemize. For the tax year 2024 — which you will file in 2025 — the standard deduction for most taxpayers is $14,600 for individuals, $29,200 for joint tax filers, and $21,900 for heads of household. Those amounts are "indexed" (i.e., adjusted) for inflation, so they can and typically do change from year to year. Before the TCJA changed the rules at the end of 2017, the standard deduction for most taxpayers was $6,500 for individuals, $13,000 for joint filers, and $9,550 for heads of household. The higher amounts will be in effect until the TCJA through the 2025 tax year unless Congress extends the standard deduction provisions of the law or makes other changes to the standard deduction. Since the standard deduction is indexed for inflation, it's impossible to predict in advance what the amounts will be for 2026 or subsequent years. If you itemize your deductions, you may be able to deduct some or all of your property tax as well as your mortgage interest on your tax returns. The property tax deduction could help you boost your itemized deductions to exceed your standard deduction and make itemizing worth the effort. There's also another reason the value of your MID may vary from year to year: With a typical fixed-rate mortgage, the interest portion of your monthly mortgage payment — the part that may be tax-deductible — gets smaller as a portion of your payment over time. A smaller deduction may diminish your tax savings. The MID is part of the federal tax code. State tax codes typically also allow this deduction. Special rules may apply if you rent out your home for part of the year or use part of your home as a home office for business purposes. As a general rule, the more income you earn and the bigger your mortgage is, the more valuable the MID may be for you if you itemize your deductions and your itemized deductions exceed the standard deduction for your filing status for a given tax year. That said, the MID shouldn't be a reason to get a bigger mortgage — or any mortgage — if you can't afford the monthly payment or you're not financially comfortable with the payment, the other costs of owning a home, and all your other expenses. If you are going to buy a home and itemizing your deductions makes sense for you, the MID could be a nice tax-saving opportunity to take advantage of. Learn more: 8 tax deductions for homeowners This embedded content is not available in your region. It depends on how much housing debt you have. For most borrowers, you can deduct interest payments on up to $750,000 of home loan debt in 2024 — including your primary mortgage and any second mortgages, such as home equity loans and HELOCs. If you're married filing separately, your mortgage interest is tax deductible on up to $375,000 of mortgage loan debt. No, you are not limited to deducting $10,000 of mortgage interest. As long as you itemize your tax deductions, you can deduct interest paid on up to $750,000 of mortgage debt (or $375,000 if you're married filing separately). You can still deduct mortgage interest if you opt to itemize your tax deductions rather than take the standardized deduction. Interest paid on home equity loans and HELOCs are no longer deductible unless you use these second mortgages to buy or build a house, or to make significant home improvements. This rule is in effect through the end of 2025.
Yahoo
8 hours ago
- Yahoo
The Living Wage a Family of Four Needs in All 50 States
If you're raising a family of four in 2025, you'll need a six-figure income in 26 states. That's more than half of America where you'll need to earn $100,000 or more annually to budget for and comfortably raise a family. Check Out: Learn More: GOBankingRates surveyed annual living expenses for a family of four across the United States using data from the 2023 Consumer Expenditure Survey and for a married couple with children from the Bureau of Labor Statistics. 'Living wage' is defined as the income required to cover 50% necessities, 30% discretionary spending and 20% for savings. Using the 50-30-20 budget rule, the study doubled the total annual expenditure on necessities to determine the 'living wage' for a family of four in each state. Ranked in order from states from the lowest to highest earnings, here's how much living wage is necessary for families of four. Living wage for a family of four: $82,338 Annual cost of housing: $13,454 Annual cost of groceries: $5,731 Annual cost of healthcare: $7,465 Also See: Discover More: Living wage for a family of four: $87,564 Annual cost of housing: $15,846 Annual cost of groceries: $6,750 Annual cost of healthcare: $7,373 Explore More: Living wage for a family of four: $87,607 Annual cost of housing: $15,670 Annual cost of groceries: $6,675 Annual cost of healthcare: $6,949 Living wage for a family of four: $87,944 Annual cost of housing: $15,517 Annual cost of groceries: $6,610 Annual cost of healthcare: $7,141 Living wage for a family of four: $88,312 Annual cost of housing: $16,504 Annual cost of groceries: $7,030 Annual cost of healthcare: $6,617 Living wage for a family of four: $90,659 Annual cost of housing: $16,394 Annual cost of groceries: $6,984 Annual cost of healthcare: $7,658 Living wage for a family of four: $91,667 Annual cost of housing: $16,548 Annual cost of groceries: $7,049 Annual cost of healthcare: $7,458 Find Out: Living wage for a family of four: $91,669 Annual cost of housing: $17,250 Annual cost of groceries: $7,348 Annual cost of healthcare: $7,064 Living wage for a family of four: $92,179 Annual cost of housing: $18,172 Annual cost of groceries: $7,741 Annual cost of healthcare: $6,756 Living wage for a family of four: $93,349 Annual cost of housing: $17,075 Annual cost of groceries: $7,274 Annual cost of healthcare: $7,820 Living wage for a family of four: $93,544 Annual cost of housing: $16,965 Annual cost of groceries: $7,227 Annual cost of healthcare: $7,535 Living wage for a family of four: $93,807 Annual cost of housing: $17,228 Annual cost of groceries: $7,339 Annual cost of healthcare: $6,987 See More: Living wage for a family of four: $94,102 Annual cost of housing: $17,448 Annual cost of groceries: $7,432 Annual cost of healthcare: $7,820 Living wage for a family of four: $94,682 Annual cost of housing: $17,382 Annual cost of groceries: $7,404 Annual cost of healthcare: $7,550 Living wage for a family of four: $94,752 Annual cost of housing: $17,514 Annual cost of groceries: $7,461 Annual cost of healthcare: $8,152 Living wage for a family of four: $95,480 Annual cost of housing: $18,523 Annual cost of groceries: $7,891 Annual cost of healthcare: $7,342 Living wage for a family of four: $95,763 Annual cost of housing: $17,843 Annual cost of groceries: $7,601 Annual cost of healthcare: $7,319 Read More: Living wage for a family of four: $96,130 Annual cost of housing: $18,633 Annual cost of groceries: $7,937 Annual cost of healthcare: $8,105 Living wage for a family of four: $96,640 Annual cost of housing: $17,623 Annual cost of groceries: $7,507 Annual cost of healthcare: $8,090 Living wage for a family of four: $96,870 Annual cost of housing: $18,567 Annual cost of groceries: $7,909 Annual cost of healthcare: $7,450 Living wage for a family of four: $98,082 Annual cost of housing: $18,962 Annual cost of groceries: $8,078 Annual cost of healthcare: $7,203 Living wage for a family of four: $98,427 Annual cost of housing: $18,326 Annual cost of groceries: $7,806 Annual cost of healthcare: $7,072 Read Next: Living wage for a family of four: $98,585 Annual cost of housing: $18,040 Annual cost of groceries: $7,685 Annual cost of healthcare: $7,110 Living wage for a family of four: $99,453 Annual cost of housing: $19,226 Annual cost of groceries: $8,190 Annual cost of healthcare: $7,488 Living wage for a family of four: $100,000 Annual cost of housing: $19,686 Annual cost of groceries: $8,386 Annual cost of healthcare: $7,805 Living wage for a family of four: $100,332 Annual cost of housing: $18,479 Annual cost of groceries: $7,872 Annual cost of healthcare: $7,758 Living wage for a family of four: $100,750 Annual cost of housing: $19,774 Annual cost of groceries: $8,423 Annual cost of healthcare: $7,751 Find More: Living wage for a family of four: $104,582 Annual cost of housing: $20,981 Annual cost of groceries: $8,938 Annual cost of healthcare: $8,044 Living wage for a family of four: $107,042 Annual cost of housing: $21,179 Annual cost of groceries: $9,022 Annual cost of healthcare: $7,828 Living wage for a family of four: $107,324 Annual cost of housing: $21,618 Annual cost of groceries: $9,209 Annual cost of healthcare: $8,128 Living wage for a family of four: $107,412 Annual cost of housing: $21,749 Annual cost of groceries: $9,265 Annual cost of healthcare: $7,820 Living wage for a family of four: $111,303 Annual cost of housing: $22,781 Annual cost of groceries: $9,704 Annual cost of healthcare: $8,198 Explore Next: Living wage for a family of four: $112,401 Annual cost of housing: $23,637 Annual cost of groceries: $10,069 Annual cost of healthcare: $7,350 Living wage for a family of four: $112,828 Annual cost of housing: $23,615 Annual cost of groceries: $10,060 Annual cost of healthcare: $7,982 Living wage for a family of four: $112,965 Annual cost of housing: $23,439 Annual cost of groceries: $9,985 Annual cost of healthcare: $6,486 Living wage for a family of four: $123,298 Annual cost of housing: $25,107 Annual cost of groceries: $10,695 Annual cost of healthcare: $8,260 Living wage for a family of four: $123,863 Annual cost of housing: $25,502 Annual cost of groceries: $10,864 Annual cost of healthcare: $8,506 For You: Living wage for a family of four: $126,753 Annual cost of housing: $25,722 Annual cost of groceries: $10,957 Annual cost of healthcare: $8,661 Living wage for a family of four: $128,484 Annual cost of housing: $28,465 Annual cost of groceries: $12,126 Annual cost of healthcare: $6,925 Living wage for a family of four: $131,024 Annual cost of housing: $27,807 Annual cost of groceries: $11,845 Annual cost of healthcare: $8,977 Living wage for a family of four: $131,102 Annual cost of housing: $29,848 Annual cost of groceries: $12,715 Annual cost of healthcare: $6,918 Living wage for a family of four: $131,824 Annual cost of housing: $28,904 Annual cost of groceries: $12,313 Annual cost of healthcare: $8,637 Trending Now: Living wage for a family of four: $131,996 Annual cost of housing: $29,211 Annual cost of groceries: $12,444 Annual cost of healthcare: $8,738 Living wage for a family of four: $134,990 Annual cost of housing: $30,331 Annual cost of groceries: $12,920 Annual cost of healthcare: $8,229 Living wage for a family of four: $135,943 Annual cost of housing: $29,804 Annual cost of groceries: $12,696 Annual cost of healthcare: $8,707 Living wage for a family of four: $136,990 Annual cost of housing: $25,854 Annual cost of groceries: $11,013 Annual cost of healthcare: $11,290 Living wage for a family of four: $155,738 Annual cost of housing: $37,354 Annual cost of groceries: $15,912 Annual cost of healthcare: $8,607 Discover More: Living wage for a family of four: $188,269 Annual cost of housing: $45,891 Annual cost of groceries: $19,549 Annual cost of healthcare: $8,213 Living wage for a family of four: $199,671 Annual cost of housing: $49,600 Annual cost of groceries: $21,129 Annual cost of healthcare: $10,033 Living wage for a family of four: $258,918 Annual cost of housing: $66,412 Annual cost of groceries: $28,290 Annual cost of healthcare: $9,540 Heather Taylor contributed to the reporting for this piece. Methodology: GOBankingRates surveyed annual living expenses for a family of four in all 50 states, using the 2023 Consumer Expenditure Survey (latest available) data for a married couple with children (oldest child 6-17) from the Bureau of Labor Statistics. The itemized costs of living evaluated were housing, groceries, utilities, healthcare and transportation, collectively termed 'necessities.' Based on each state's respective cost-of-living index for each category, sourced from the Missouri Economic Research and Information Center's 2024 Q3 Cost of Living Data Series, the study calculated the annual cost of each necessity and summed them up to find total annual expenditure on necessities. Using the 50-30-20 budget rule, which allocates 50% of income for necessities, the study doubled the total annual expenditure on necessities in order to determine the 'living wage' for a family of four in each state. 'Living wage' is defined as the income required to be able to cover 50% necessities, 30% discretionary/luxury spending and 20% for savings. All data was collected on and is up to date as of Dec. 11, 2024. More From GOBankingRates 5 Types of Cars Retirees Should Stay Away From Buying This article originally appeared on The Living Wage a Family of Four Needs in All 50 States Sign in to access your portfolio
