NJ Small Business Retirement Plans: SEP vs. SIMPLE vs. Solo 401(k) Compared
- Gregory Monaco, CPA
- Oct 31
- 4 min read
Planning for retirement is crucial for small business owners, and choosing the right plan can yield significant tax benefits. In New Jersey, entrepreneurs often consider three popular options – SEP IRAs, SIMPLE IRAs, and Solo 401(k)s – each with different contribution limits and features. Below we break down these plans and how they can help NJ business owners save on taxes:
SEP IRA (Simplified Employee Pension): A SEP allows a business owner to contribute up to 25% of net self-employment earnings, up to a maximum of $70,000 for the 2025 tax year. Contributions are made only by the employer (you), but they are very flexible – you can decide each year how much to contribute or even skip contributions in lean years. SEP IRAs are easy to set up (just a one-page form) and have low administrative costs. Tax win: Contributions are deductible business expenses, reducing taxable income (and they lower both federal and NJ state income since they reduce your business profit). Keep in mind that if you have employees, you generally must contribute the same percentage of pay for them as you do for yourself.
SIMPLE IRA (Savings Incentive Match Plan for Employees): A SIMPLE IRA is designed for small businesses with 100 or fewer employees. It allows employee salary deferrals up to $16,000 in 2024 (rising to $16,500 in 2025) plus a $3,500 catch-up if 50+. Employers must make a matching contribution (generally 3% of salary) or a fixed 2% contribution for all eligible employees. Tax win: Your contributions (both the employee deferrals from your own pay and any employer match you give yourself) are pre-tax and deductible. A SIMPLE IRA is easier to administer than a 401(k) and has no complex filing requirements. However, contribution limits are lower than SEP or Solo 401(k), and if you have employees, you’re required to contribute for them as outlined.
Solo 401(k) (One-Participant 401k): A Solo 401(k) is a 401(k) plan for self-employed individuals with no employees (other than a spouse). It has the highest contribution potential because you can contribute in two ways: employee salary deferrals up to $23,500 for 2025 (or $31,000 if age 50+, due to the $7,500 catch-up), and an employer profit-sharing contribution up to 25% of your earnings. The combined cap for 2025 is $70,000 (or even higher if you’re over 50 and making catch-up contributions). This means a high-earning self-employed person could potentially max out at $70k into a Solo 401(k), far exceeding the other plans. Tax win: All contributions are deductible (or can be designated Roth for the employee portion if you prefer after-tax). Solo 401(k)s also allow loan provisions and Roth options that SEP/SIMPLE do not. They do have slightly more paperwork – for example, once assets exceed $250k you must file an annual Form 5500 – but many providers assist with this.
Which plan is right for you?
It depends on your business size and income. A SEP IRA is great for sole proprietors or those with a few staff and high profit, and it’s very flexible. A SIMPLE IRA works well for modest incomes or for adding a basic employee plan with minimal admin. A Solo 401(k) shines for owner-only businesses looking to maximize contributions (particularly if you want to contribute both as “employee” and “employer” to reach the limit). New for NJ: Fortunately, New Jersey does not tax retirement contributions differently – these plans reduce your federal taxable income and, in turn, generally reduce your NJ Gross Income Tax since they lower your business income. Remember that starting in 2025, many brokers will issue new Form 1099-DA or similar for retirement account proceeds, but contributions to your own plans are not reported as income.
Lastly, keep in mind New Jersey’s new Secure Choice auto-IRA mandate for larger employers (25+ employees) – if it applies, offering a qualified plan like the above can satisfy that requirement. Always consult with a CPA or financial advisor to tailor the plan choice to your situation. With the right plan, you’ll build your nest egg and enjoy substantial tax savings now.
Ready to Build a Smarter Retirement Strategy for Your Business?
Don’t wait until tax season to think about your future — make retirement planning part of your financial strategy today.
At Gregory Monaco, CPA LLC in Livingston, NJ, we help small business owners choose and manage the right retirement plan — whether that’s a SEP IRA, SIMPLE IRA, or Solo 401(k). Our team provides clear, actionable advice to maximize your contributions, reduce taxes, and keep your plan compliant with IRS and New Jersey requirements.
From self-employed professionals to growing small businesses with employees, we’ll help you design a retirement strategy that fits your goals and cash flow — so you can save more, stress less, and secure your future.
Let’s make retirement planning a powerful part of your business success story.
Gregory Monaco, CPA | Livingston NJ (serving NJ + virtual nationwide)
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