Question:  My Company had a good year and my accountant says I could use some more deductions on my tax return.  Can I contribute extra to my company’s SIMPLE IRA plan for myself and employees this year?

Answer:  Congratulations on the good year!  The SIMPLE IRA is a great starter retirement plan for companies who are unsure of their employees’ interest in a retirement plan but want to offer something to the employees to encourage retirement savings.  The upside of a SIMPLE IRA is how easy and inexpensive they are to set up and maintain.  Setting one up can give the company an idea of how many employees actually are interested in using a company retirement plan.  The downside is the inflexibility of a SIMPLE IRA to contribute extra money to the plan in a good year.  A SIMPLE IRA allows the employer to make a choice before the start of the calendar year to either make a 2% profit sharing type contribution or a matching contribution of 100% on the first 3% an employee contributes to the plan.  Most employers elect the matching type contribution and contribute the employee payroll funds and matching contribution at the same time throughout the year.  But what happens if the employer wants to contribute more than either the allowed 2% or 3%?  Nothing happens – extra contributions are not allowed in a SIMPLE IRA.  Many successful companies find they outgrow their SIMPLE IRA over time because there is a desire by the company to contribute more to the employees so they can share in the success of the company.  Then it is time to consider upgrading to a 401(k) plan which will bring with it some annual accounting fees but also some flexibility and higher levels of contributions which can make the decision worthwhile.  In your situation it is time to take a look at your options and decide if the SIMPLE IRA is still meeting your retirement needs.5