How to File Form 5500-EZ For Your Solo 401k

If you have a solo 401k, also known as a self-employed 401k or an individual 401k, your plan year typically is the same as the calendar year. When 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. When my plan was with Fidelity, I received my Retirement Plan Annual Valuation Statement from Fidelity each year. With the information from Fidelity, I completed Form 5500-EZ in less than 10 minutes.

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

Accounting

For money contributed in one year for the previous plan year, you can either count it in the year it was actually contributed (the “cash method”) or you can count it on the form for the previous year (the “accrual method”), but once you pick a method you should stay consistent with that method from year to year. To me, the cash method is easier because it matches the report from Fidelity.

Fidelity’s annual valuation statement doesn’t break out the total contributions by the employer and the employee(s) (“participants”) whereas Form 5500-EZ wants the employer and the employee/participant contributions separately. If you do a mix of employer and employee contributions, be sure to track the breakdown yourself. If you had an incoming rollover, enter the value of the rollover in the field for “Other.”

Plan Characteristics Codes

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
• 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.

Opinion Letter Serial Number and Date

The 5500-EZ form also asks for an IRS opinion letter serial number and date. You can find them near the end of the plan document from your provider.

• Charles Schwab: Individual 401(k) Basic Plan Document (page 35)
• E*Trade: Individual 401(k) Plan Documents (page 67)
• Fidelity: Defined Contribution Retirement Basic Plan Document No. 04 (page 25)
• Vanguard: Individual 401(k) Basic Plan Document (page 49)

July 31 Deadline

That’s it. Form 5500-EZ is really easy, but you have to remember to file it. The deadline is July 31 each year for most plans that use the calendar year as the plan year. If you forget, the late filing penalty is $250 per day up to $150,000! Set up multiple recurring reminders in your calendar to file the form.

You can file the form on paper by mail to the IRS or you can file the form electronically using the EFAST2 system. Filing it electronically gives you proof that you filed the form. Use Certified Mail and keep proof of mailing if you file on paper.

The biggest advantage of a Solo 401k is that it allows employee contributions in addition to employer contributions whereas the SEP IRA 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.