This post shows you how to fill out a 5500-EZ for your Solo 401k.  You may be aware of this from the documents you received from your custodian or Solo 401k administrator.  If not, this is a form that you file with the government every year showing the value of the balance of your Solo 401k.  Once your plan hits a balance of $250,000 or more on the last day of your plan year then you are required to file it.  You must file it every year thereafter until you terminate the plan.  Even if the balance dips below $250,000 you still need to file it if you’ve already filed before.  Let’s step in and see how to fill out a 5500-EZ.

Filling It Out

The 5500-EZ is a two-page form with five parts.  Part I is very straightforward.  You enter the plan year according to your plan document (most end on December 31).  You also check any box that is relevant to your plan.  Part II is also straightforward, and you can get all of this information from your plan document, too.  You want to pay special attention to question 4, in case any of the plan identification items have changed.  Most Solo 401k plans will report either one or two participants in question 5, depending on whether you are married (and your spouse participated).  Occasionally, multiple owner plans will report more.  If you need your principal business activity code you can find it in the instruction booklet for 5500-EZ.

Part III is where some people start to get tripped up.  Simply enter your plan assets from the beginning of the year.  This should match the plan assets from the end of the year from the previous filing.  Then enter your plan assets from the last day of the year.  Solo 401k plans typically do not report liabilities, so you will report net plan assets as identical to total plan assets.  Question 7 asks for contribution sources.  Remember, employers (line a) refer to profit sharing components, whereas participants (line b) refer to your elective deferrals.  Any other contributions (line c) typically refer to rollovers from other plans.

The Hardest Parts

Part IV is another place that confuses people.  You can find the list of two-character feature codes by searching for the instruction booklet for 5500-EZ.  The ones you typically see for Solo 401ks are:

• 2E – profit sharing plan
• 2J – Section 401(k) feature
• 2K – Section 401(m) arrangement
• 2R – participant-directed brokerage account
• 3B – Plan covering self-employed individuals
• 3D – Pre-approved pension plan

but you should consult the list to verify that you didn’t leave anything out.  Of course, if one of these common codes does not apply to you then do not include it.

Part V is the most difficult because of the jargon.  Typically, only question 9 needs to be answered affirmatively.  You will know whether you took out a loan.

Making Your Filing

Once you answer the questions your head over to EFast to file.  Set up your log in credentials, verify the accuracy of your information, and file your form.

Penalties

You have to file 5500-EZ every year once you are eligible.  You are subject to penalties if you do not.  Penalties start at $250 per day and max out at $150,000 for each late filing!  This means that after 600 days you will accrue the maximum penalty, at which point you will be notified.  They have no incentive to wait past 600 days, and they have no incentive to notify you before 600 days.  If you find yourself in a penalty situation you can always apply for the Penalty Relief Program.

Now that you know how to fill out a 5500-EZ you have no excuse for penalties.

Sherman Asset Management does not provide tax or legal advice.  The information contained herein is provided for informational purposes only.  Do not rely solely upon this information to make tax decisions.