Annual 5500-EZ Form

For many of you, this blog may not be applicable, but it is important to remember this obligation your Solo-K (also known as an Individual 401(k), Uni-K, Self-Administered 401(k) Plan) plan has IF applicable to the plan. As we have discussed before, there is very little reporting requirements generally applied to an individual 401(k) plan. Two responsibilities of note that plans can incur are:

  1. Correctly reporting rollovers into the plan; and,
  2. Preparing and submitting the IRS Form 5500-EZ (if applicable to the plan)

There will be only two (2) triggering events which will dictate completion or on-going completion of Form 5500-EZ. First, is if the FMV (Fair Market Value) of your plan exceeds $250,000 by December 31st of the prior year. Second, regardless of your FMV account balance, is when you terminate your plan. Upon termination, you will have up to 7 months to submit a final 5500-EZ reporting the final disposition of plan assets (also you should be contacting PGI so we can properly terminate the plan as well from a plan sponsorship standpoint).

If your plan is subject to the filing of the 5500-EZ, here is the fillable 5500-EZ form.

Who must complete the 5500-EZ?

This annual informational return is required for all “one-participant plans” (to include an owner/only, owner/spouse only plan) that has met the previously-noted thresholds of either: having FMV of plan assets exceeding $250,000 or to report the termination of the plan. The fair market value of the plan is based on the year-ending FMV of 12/31 for the plan.

TIP #1 – For most, the plan would be the only entity being reported on for FMV; however, in the case where the self-employed business owner triggers any controlled-group or affiliated-service group issues, it would also include the assets of these controlled or affiliated-service group(s).

TIP #2 – Again, IF the plan’s assets do not exceed $250,000 or the plan is not in its final year and being terminated, you do not need to complete the 5500-EZ.

When and how must the 5500-EZ be submitted?

  1. The 5500-EZ must be submitted by July 31st of the following tax year (e.g., July 31st of 2019 for plans that had a plan year ending (most of you) December 31, 2018).
  2. The 5500-EZ cannot be sent as an e-filing. It must be submitted in paper “hard” manner. The form would be mailed to the following address:
  • Department of the Treasury, Internal Revenue Service, Ogden, UT 84201-0020.
  • You can use courier service to over night/express mail the 5500-EZ to the IRS. If you do, you must use one of the approved couriers by the IRS to include: DHL Express (DHL): Same Day Service. Federal Express (FedEx): Priority Overnight, Standard Overnight, FedEx 2 Day, FedEx International Priority and FedEx International First. United Parcel Service (UPS): UPS Next Day Air, UPS Net Day Air Saver, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express. If sent via courier service, please mail to: Internal Revenue Service, 1973 Rulon White Blvd., Ogden UT 84404.

TIP #3 – The form must be signed by the Trustee/Business Owner. Do not have anyone else sign the form on your behalf. The form cannot be electronically signed. A “wet” signature is required. Use blue or black ink, not any other color or felt pens.

Return the form as is. Meaning, do not write notes off the to side or include additional side notes or attachments. The old line of “just the facts mam”(for those of you who remember the TV show Dragnet) could instead be turned into “just the form mam.”

The form has fillable fields. Do not try to enter in information that what the form is asking for.

Financial Penalties?

Yes, make sure you get this done. The IRS is not asking for too much…and, yes, they will incur a financial penalty to you of $25 a day up to $15,000 for non-compliance.

Completing the 5500-EZ

You will find that the form is not overly difficult to complete. However, this is a tax form and you should always review it with your tax professional before submission. You will find that once you complete this form, future forms should not be difficult or necessarily different on how to complete.

Part I – Annual Return Identification Information

You will indicate the dates of the plan year and whether it is the first filing or on-going submission. Of course, if you have terminated the plan, you would indicate accordingly.

Part II — Basic Plan Information

1a — Enter the plan per the IRS’s EIN Letter (and your Adoption Agreement);

1b — For most of you, the three-digit plan number will be 001;

1c — Date the plan became effective from the IRS EIN Letter.

2a – c — Should be self-explanatory;

2d — Enter in the most applicable business code for your business (pages 9 – 11).

4a — Technically does not need to be completed (“Same”) unless the plan information has changed….which for most of you, there will not be a change.

5a(1) — If you are the sole owner and participant, you will enter 1. If your business is a spouse/spouse owned business you will enter 2;

5a(2) — Again, you will enter 1 or 2;

5b(1) — Again you will enter 1 or 2;

5b(2) — Again you will enter 1 or 2;

5c — In most cases for a Solo-K Trustee/participant this will be 0.

Part III – Financial Information

6a(1) — You will enter in the total plan assets when you commenced your plan. Total plan assets will include rollovers into the plan and unrealized gains/losses such as appreciation/depreciation;

6a(2) — You will enter in the total plan assets at the end of the year, not including plan contributions, but inclusive of any plan liabilities;

6b(1) — Enter in Total Plan Liabilities at the beginning of the year. If you have any questions on whether the plan has liabilities, you should consult with your tax professional;

6b(2) — Enter in your Total Plan Liabilities at the end of the year (12/31);

6c(1) — For the beginning of the year, list Net Plan Assets by subtracting line 6b from 6a);

6c(2) — For the end of the year, the Net Plan assets are listed by subtracting line 6b(2) from 6a(2).

7a — List contributions from the “employer”, whether that is a sole proprietorship of corporation (S or c Corp);

7b — List all contributions made by the participant (you/spouse) for the year;

7c — “Other” would include rollovers from other plans brought into the plan. Obviously, report the fair market value of the rollover upon rolling it into the plan.

Part IV – Plan Characteristics

Generally speaking, these are the code characteristics you would enter:

If plan account opened at a bank — 2E, 2J, 3B and 3D;

If plan account opened at a brokerage firm (e.g, Schwab) — The four (4) above, plus 2R.

Part V — Compliance and Funding Questions

9 — Indicate if any participant (participant/spouse) took a loan from the Solo-K and the amount. If no loan was executed, you would indicate with a no.

10 — You will check no.

11 — You will check no.

Please advise if you have any questions related to the IRS Form 5500-EZ. While not a difficult form, you do want to make sure you submit correctly.