What a contribution saves in New Jersey
The table shows three owners, each making the largest first-year contribution their age and income allow. New Jersey's top rate is 10.75%, and how much a contribution saves depends on which brackets it comes out of.
| Owner | Contribution | Federal | New Jersey | Total |
|---|---|---|---|---|
| Sole proprietor, 45, $250,000 profit, single | $156,000 | $32,700 | Not deductible | $32,700 |
| S corporation, 52, $250,000 salary and $250,000 profit, married | $223,000 | $50,800 | $14,200 | $65,000 |
| Sole proprietor, 58, $600,000 profit, married | $282,000 | $93,000 | Not deductible | $93,000 |
Savings are lower than the contribution times your top rate because a large contribution reaches down into lower brackets, and because for many owners it also reduces the 20% qualified business income deduction. Your own figures depend on your income, filing status and other deductions. The estimate works them out for you.
How New Jersey treats the deduction
New Jersey is one of three states, with the others listed in states that tax retirement contributions, that do not follow the federal deduction for a self-employed owner's contributions. The notes below explain what that means and how an S corporation differs.
New Jersey taxes a self-employed owner's plan contributions
New Jersey does not allow a self-employed owner or partner to deduct contributions to a defined benefit plan or to profit sharing. Salary deferrals to a self-employed 401(k) are deductible up to the federal limit. So a sole proprietor or partner in New Jersey saves federal income tax on a cash balance contribution, but not New Jersey tax.
Contributions made by an S corporation for its owner-employee are believed to be deductible, which is why the S corporation example above shows a state saving. That treatment has not been confirmed with the Division of Taxation.
New Jersey lets you recover previously taxed contributions when the money is paid out, so the same dollars are not taxed twice.
If you retire somewhere else
Money in a cash balance plan is taxed when it comes out, not when it goes in. Federal law stops a state from taxing retirement income paid from a qualified plan to someone who no longer lives there (4 U.S.C. 114). So the state you live in when you take the money out is the one that can tax it.
For someone who contributes while living in New Jersey, where the top rate is 10.75%, and later retires in a state with lower or no income tax, that can make the state saving permanent rather than a deferral.
Deadlines are federal
The dates that matter are the same in every state: the plan can be adopted for 2026 up to your business's extended filing deadline, and corporations have to run the salary the plan counts through payroll by December 31. See cash balance plan deadlines or find your dates.