If you have a Solo 401(k) and have at least $250,000 in assets as of December 31, 2020 and haven’t filed Form 5500, you could be in a world of hurt. One of the provisions of the SECURE Act, signed into law on December 20, 2019, increased the penalties for not filing this form. You have until July 31 to file, or face stiffer penalties. You will be penalized $250 per day, up to $150,000 annually, if you do not file on time! This penalty was increased ten times the previous penalty.
- Form 5500 is REQUIRED for Solo 401(k) participants with $250,000 in assets
- The deadline to file Form 5500 is July 31
- Severe penalties if you miss the deadline
- There is a relief program for deliquent returns
Who Needs to File Form 5500
According to the Department of Labor, the 5500 Series:
…is an important compliance, research, and disclosure tool for the Department of Labor, a disclosure document for plan participants and beneficiaries, and a source of information and data for use by other Federal agencies, Congress, and the private sector in assessing employee benefit, tax, and economic trends and policies.Department of Labor
Many businesses who have an ERISA plan need to file a version of the Form 5500. Here at IRA Financial, our clients come first, so our concern are those with One Participant plans, also known as the Solo 401(k). Generally, there are no annual filing requirements for the plan. That is, until you are lucky enough to reach $250,000 in total assets. It is then required you to file the IRS Form 5500.
There are two options:
- Form 5500-EZ, which is filled out by hand and sent to the IRS
- Form 5500-SF, which can be filled out online and must be filed electronically
Don’t fret, Form 5500 is a simple information form to show the fair market value of the assets held within the plan. If your plan is valued under $250,000, there is no form to file.
How to File
Generally, your Solo 401(k) plan provider will provide you with the information about your plan assets. This information will be used on the form. In fact, with IRA Financial’s annual compliance service, we’ll complete the form for you and help you file it.
There’s essentially five sections to fill out. First, you must fill out the annual return identification information. Next, comes the plan information. Basically, this is the name of the plan and business sponsoring it, the number of participants and other basics about the plan. Then, comes the really important stuff – the financial information. This is where you report the value of your plan assets, any liabilities and cash contributions to the plan. You must ensure this information is correct.
The last two sections, Plan Characteristics and Compliance and Funding Questions, are just a handful of boxes to check or not. That’s it! Failure to file on time will lead to those costly penalties. Understandably, the IRS is concerned once plan balances start to grow. Assuming you are not involved in any wrongdoing, filing the Form 5500 should be seen as a minor inconvenience. Fraud and other illegal activities are the reason for such stiff penalties. You should have no probables so long as you file on time!
What if You Haven’t Filed Form 5500 On Time?
Before the July 31 deadline, you may choose to file an extension if you need more time. You must file Form 5558 to receive the extension. Keep in mind, this must be done before the deadline! However, if you missed the deadline, you may be eligible for the Penalty Relief Program for Form 5500-EZ Late Filers.
If your return is delinquent and you are not under audit, you may be eligible to pay $500 annually, instead of the entire yearly penalty. You must prepare the delinquent returns, note that they are eligible for penalty relief and complete Form 14704. You must pay the $500 fee and mail your return(s) to the IRS.
Click Here for a PDF of the Penalty Relief Program
Reasonable Cause for Late Filing
Alternatively, you may choose the option to apply for reasonable cause. A “person of authority” must sign a statement of your “reasonable cause for an untimely return.” If the request is denied, you will get a CP 283, a penalty notice, and the return will no longer be eligible for the relief program. Therefore, you must ensure that you cause is enough to convince the IRS that your delinquent filing is valid. In the end, you may be better off simply going the route of the relief program. Consult with an expert before submitting your reasonable cause request.
You have a little over a week to get your Form 5500 filed or to request an extension. The current COVID-19 pandemic may have impacted your life and finances that you may have forgotten, or simply didn’t know you must file anything for your Solo 401(k) plan.
If you have any questions, or need help filing the form, please get in touch with IRA Financial at 800.472.0646 today! We don’t want you to face the harsh penalties for not having filed Form 5500!