Form 5500-EZ For Your Solo 401k

If you have a solo 401k, also known as a self-employed 401k or an individual 401k, and the plan’s assets as of December 31 last year exceeded $250k, you are required to file a Form 5500-EZ with the IRS before July 31 each year.

If you dread another tax form, relax. Form 5500-EZ is very easy to do. My plan is with Fidelity. I received my Retirement Plan Annual Valuation Statement from Fidelity last week. With the information from Fidelity, I completed Form 5500-EZ in less than 5 minutes.

Here’s a filled-out example (click on it if you want to see page 2):

Besides the usual Tax ID, name, address and phone number entries, Form 5500-EZ asks about the plan’s assets at beginning of the year, at end of the year, and the total contributions during the year. As far as the numbers go, that’s it, very simple. I get those numbers from the annual valuation statement from Fidelity.

Fidelity’s annual valuation statement doesn’t break out the total contributions by employer and employees whereas Form 5500-EZ wants the employer and employee contributions separately. I get an easy out because all my contributions are employer contributions. If you do a mix of employer and employee contributions, be sure to track the breakdown yourself.

If you are filling out Form 5500-EZ for the first time, you have to look up a few codes in the Form 5500-EZ Instructions. The second time you just copy from the previous year. For my plan:

Line 2d Business code:

  • 519100 = Other Information Services (including news syndicates, libraries, internet publishing & broadcasting)

Line 8 List of Plan Characteristics:

  • 2E = Profit-sharing
  • 2J = Section 401(k) feature
  • 2R = Participant-directed brokerage accounts provided as an investment option under the plan
  • 2T = Total or partial participant-directed account plan – Plan uses default investment account for participants who fail to direct assets in their account
  • 3B = Plan covering self-employed individuals
  • 3D = Pre-approved pension plan – A master, prototype, or volume submitter plan that is the subject of a favorable opinion or advisory letter from the IRS.

That’s it. Form 5500-EZ is really easy.

If you have a SEP-IRA and you worry about Solo 401k being too difficult to do, don’t. Even if you have to file this extra form once a year, it only takes 5 minutes. The biggest advantage of a Solo 401k is that it allows employee contributions in addition to employer contributions whereas the SEP only allows employer contributions. This is more important if your self-employment income is under $200k or so.

If you are not earning big bucks from self-employment, Solo 401k is the way to go. If you are earning big bucks from self-employment, Solo 401k still helps you with Backdoor Roth.

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Comments

  1. bn says

    The last paragraph of this article was the best. Do you have an article that compares SEP IRA’s to Solo 401(k)’s based on who can contribute, how much, fees to set up each plan, and best brokerage to use for each?

  2. Shawanda @ You Have More Than You Think says

    I’ll be glad when I have to worry about the 5500-EZ filing requirement.

  3. BN says

    Thanks for the link to Mike’s article. I read his blog regularly too but seemed to have missed that one.

    Out of curiousity – how did you even know that Form 5500 was required?

  4. TFB says

    BN – The solo 401k provider lists it as a task. Fidelity says this under “Maintain Your Fidelity Retirement Plan”:

    “The Plan Administrator is responsible for:

    … …

    Filing annual tax report Form 5500 — this filing does not apply until your total plan assets exceed $250,000. For more information on tax reporting, read Form 5500 Filing Assistance or Form 5500 Frequently Asked Questions.”

    Vanguard is more obscure about it. It only vaguely mentions “Requires filing with IRS” on its compare plans page.

  5. Son Nguyen says

    As for “Plan Characteristics”: how do you know which ones to list? I understand your selections for solo 401k and likely work for mine own filing but I was wondering what some other characteristics mean (eg: 2B, 2C, 3E)

  6. Mike says

    Part 1 A – box 4 is confusing. Do you have to file this if the plan is < 12 months old, which it would be in the first year of the plan? Or only when the balance exceeds $250K?

  7. TFB says

    Mike – You have to file this whenever the end-of-year balance exceeded $250k. It could be the first year, the third year, or the last year. The boxes in Part I, line A are just additional information. If it’s the first time you ever file this for the plan, check box (1). If it happens to be a short year (first year and you didn’t make the plan effective Jan. 1, or the last year before termination), check box (4). If none apply, don’t check any boxes.

  8. Kevin H says

    I stopped trying to navigate IRS/DOL guidelines on my company’s retirement plans a few years ago and I am so glad that I did! I hired a professional to do it and I recommend the same for anyone else trying to run their own business and administer their own plan. The mistakes that you can make and the time wasted fixing them is not worth it. I found an administrator to be a great value and appreciate all of the help that they have provided my company over the past two years.

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