Reminder:

Form 5500-EZ Due by July 31, 2022

 

by Jordan Sheppherd

Life Settlements in a Retirement Account? Think Again.

It’s hard to believe we’ve crossed the halfway point of 2022. I’m sure I’m not alone in saying it seems like yesterday we were celebrating the New Year.

For those of you who have Solo 401k plans, remember that the due date for Form 5500-EZ is July 31. If your 401k plan is required to file a 5500-EZ form for 2021, then make sure to complete the form and get that filing in on time.

Who Must File a Form 5500-EZ?

There are two things that can trigger a requirement for you to file Form 5500-EZ for your Solo 401k plan.

You must file a Form 5500-EZ if:

  • The total value of your Solo 401k exceeded $250,000 as of the last day of 2021.
  • You terminated and closed your Solo 401k in 2021.
    • (And by closed we mean, if you formally terminated the plan, and distributed/rolled over all cash/assets out of the 401k to other retirement plans)

So, if on December 31, 2021 your Solo 401k plan’s total value was above $250,000 then as the Trustee of your own 401k, you are required to file the Form 5500-EZ.

Likewise, if you closed down and terminated your 401k in 2021, then you are also required to file a “final” Form 5500-EZ, regardless of the 401k’s ending value before termination. A box appears on the form to designate the return as your Solo 401k’s “final” return.

When Is the Form Due?

Form 5500-EZ is due by July 31. You may extend the due date by filing Form 5558, however you may only file once each year to extend the due date for Form 5500-EZ.

What is Form 5500-EZ?

Form 5500-EZ is a severely cut-down version of the full 5500 form that most 401k plans are required to complete. Most 401k plans cover a number of employees that are not owners of the sponsoring business, so those 401k plans are under a fairly heavy compliance burden, in order to ensure the 401k plan is operating in a way that doesn’t violate the rights of the employees.

Solo 401k plans do not cover anyone other than the owner(s) of the sponsoring business, and so are not required to file the full 5500 form. In the legislation passed in 2001 that allowed Solo 401k plans, one of the changes made was an overall reduced set of reporting requirements for these “solo” 401k plans, that resulted in the creation of a two-page version of the full 5500 form. That form was named 5500-EZ and is a form specifically for Solo 401k plans.

The form requires you to enter the 401k’s information, as well as your business information. The form also requires you to list a few metrics, such as confirming what you contributed to the plan in 2021, and reporting the total value of your 401k as of (roughly) the last day of 2021.

How Do I Complete the Form?

We have provided line-by-line instructions for Form 5500-EZ on our new client website. That website is for Solo 401k clients only, and so if we are your 401k’s document provider and your plan is in good standing with us, you will have already signed up for an account. Just click on the link above and log into the site. You can also navigate to the instructions for Form 5500-EZ by visiting the Annual Requirements module of the new site.

The form must be filed with the IRS, and requires a paper filing, so you must complete, sign, and mail the form to the IRS. You will find the mailing address information on the instructions page linked above.

If you would prefer a CPA file your 5500-EZ, we are happy to provide a list of tax professionals who work with Solo 401k plans, and can handle this or any other filing you may need.

What Happens If I Don’t File the Form?

The IRS is pretty ouchy about late 5500 forms in general, and they don’t make exceptions for the shorter 5500-EZ form. The late filing fees are almost comically high at $250 per day, capped at $150,000 (yes you read that right.)

Thankfully, the IRS does provide relief for 5500-EZ late filers. So if you forgot to file last year’s 5500-EZ form (or any previous years), you are given the ability to file any outstanding returns and pay a flat $500 fee per late return. If you need to take advantage of this program, we’re happy to provide a list of tax professionals that can help you with any late filings for years previous to 2021. 

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    2 Comments

    1. Frank Peterson

      Having to file the 5500-EZ by mail I would strongly suggest sending it registered return reciept so IRS can’t say you never mailed it. $7 is worth piece of mine compared to $250 day late penalty.

      • Jordan Sheppherd

        You’re right, Frank. It is a good idea to send it some way where delivery can be confirmed and produced, if there were ever any confusion as to whether or not the form was sent/filed.