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.
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Harold M says
I had a solo 401K for many years with TD Ameritrade. This plan was switched over to Schwab in Sept. after their merger was completed. Would I need to submit a 5500EZ for both plans, or just the Schwab plan?
Harry Sit says
You only have one plan. It used to use TD Ameritrade’s template. You amended it to use Schwab’s template starting in September last year. You’re still reporting for this one plan. Same plan name, same plan number. Give the Schwab determination letter serial number and date.
Andrew says
I have the same situation. My plan name at Ameritrade was:
“My name” Trustee FBO “My name”, Individual 401k FBO “My name”.
I called Schwab after the merger and asked them if the plan name had changed. They said yes, it is now:
“My name” Charles Schwab and Co. Inc. Cust. “My name” Ind. 401k I
Line 4 on form 5500ez tells you to enter the old plan name if it has changed, so that’s what I did.
Jill says
Thanks for this helpful guide, I’m completing my first Form 5500-EZ and hope to get it right. In 2024, I transferred/rolled-over my SEP-IRA into my i401k. This brought the i401k over the $250K threshold. I then moved that i401k (Roth and traditional) from Vanguard to Schwab.
In Part III, 7c, do I enter the amount of the rollover of the SEP into the i401k?
Also, I am guessing that I do not need to indicate the movement of assets from Vanguard to Schwab (since the plan itself has not changed), but please correct me if I am wrong. Thank you!
Harry Sit says
That’s correct. A rollover from a SEP-IRA into the plan goes on Line 7c. Only changing the custodian of plan assets doesn’t need to reported on Form 5500-EZ.
jill says
Thank you!
Geeta says
Thanks for the great explanation & example! I closed 2 solo 401k’s last year for my sole-proprietorship:
1. Roth 401k –> This was the regular 401k
2. Pre-tax 401k –> This was the “Profit Sharing Component”
For the “Plan characteristic codes”, which of these would apply to which account?
– 2E – profit sharing
– 2J – section 401(k) feature
– 3B – plan covering self-employed individuals
– 3D – pre-approved pension plan
I’m guessing that 3B & 3D apply to both, as does 2J (since both are 401k’s).
Not sure about 2E.
Please help! Thanks 🙂
Geeta Arora says
Thanks for the great explanation & example! Would appreciate a quick response to this:
I closed 2 solo 401k’s last year for my sole-proprietorship:
1. Roth 401k –> This was the regular “Employee / deferral” 401k (with usual limit of ~23k/yr)
2. Pre-tax 401k –> This was the “Profit Sharing Component” / Employer contribution (with high limits of upto 70k/yr combined for both 401ks).
Does the “plan characteristic code” of “2E – profit sharing” just apply to #2 (employer / profit sharing, #2 above) or also to the employee / deferral account (#1 above)?
Please help! Thanks 🙂
Harry Sit says
Your Roth 401k and pre-tax 401k are two sub-accounts within the same plan. You only file one 5500-EZ for your one plan with the code 2E.