Contributing to a retirement plan is one of the most effective tax reduction strategies available to NJ small business owners because it reduces both federal and NJ taxable income simultaneously. A SEP-IRA allows contributions up to 25% of net self-employment income (max $69,000 for 2024, $70,000 for 2025). A Solo 401(k) offers even higher limits through combined employee deferrals and employer contributions. Greg Monaco, CPA helps clients choose the right plan structure and maximize contributions each year.
Contributing to a retirement plan is one of the most effective tax reduction strategies available to NJ small business owners.
SEP-IRA
Contributions up to 25% of net self-employment income, max $69,000 for 2024. Easy to set up, no annual filing. Deadline extends to tax return due date. Main drawback: must contribute same percentage for employees.
Solo 401(k)
Both employee deferrals ($23,500 for 2025) and employer contributions (up to 25%). Combined max $69,000 plus $7,500 catch-up if 50+. Employee deferral deadline is December 31.
SIMPLE IRA
For businesses with up to 100 employees. Employee contributions up to $16,500 for 2025. Employer match up to 3% or 2% non-elective. Setup deadline is October 1.
NJ State Tax Benefits
Contributions reduce both federal and NJ taxable income. At NJ’s top rate of 10.75%, state savings alone can be significant.
Key Takeaway
Retirement plan contributions produce a dollar-for-dollar reduction in taxable income at both the federal and NJ level. At NJ's top rate of 10.75% combined with a 35% federal rate, every $10,000 contributed saves roughly $4,575 in taxes. The key is choosing the right plan for your business structure, employee situation, and contribution goals.
Related reading: Year-End Tax Moves for NJ Business Owners | S-Corp Salary vs. Distributions | Top 5 Overlooked Deductions | Tax planning services
