Many taxpayers with self-directed (or “solo”) 401(k) plans are aware that they may be required to file Form 5500EZ annually. This requirement begins the first year that plan assets exceed $250,000 (or the year in which all plans sponsored by the same employer reach that threshold), and continues each year thereafter. The form is typically due each July, and can be found here: https://www.irs.gov/forms-pubs/about-form-5500-ez. Many taxpayers with self-directed 401(k)s file Form 5500EZ on their own, as it isn’t particularly difficult. That said, all information provided herein is educational only, and if you have any questions, contact your tax preparer.
Part I of the return is mostly self-explanatory.
In Part II, the name of the 401(k) plan goes on Line 1a, and the “Effective Date” listed in your 401(k) adoption agreement on 1c. On Line 1b, you assign the plan a three digit number. If your business has only one retirement plan that has ever filed a Form 5500EZ before, this would normally be “001.” This number must be kept consistent year to year. On the other hand, if your business has multiple retirement plans, each with their own separate set of plan documents, each plan will have its own number (“001”, “002”, etc.).
One Lines 2a-2d, you put the information of the sponsoring employer. The EIN that goes here is the EIN of the sponsoring employer, not the 401(k) plan’s EIN. If this is a plan for a non-LLC sole proprietor, remember to use your sole proprietorship EIN (separate from your SSN and separate from your 401(k)’s EIN). Regarding Line 2d, you can get the business activity code from any of your business’ prior year tax returns. If your business files a Schedule C with your personal tax return, this code is found in Box B of the Schedule C itself (at the top of the page). If your business files its taxes on Form 1120S or Form 1065, this code is found on Box B of Form 1120S or Box C of Form 1065, both at the top of the first page of the return. You can alternatively look up the code in the instructions to Form 5500EZ.
Most self-directed 401(k)s do not have a separate third party administrator, and will therefore simply enter “Same” on line 3a, leaving lines 3b-3c blank.
Lines 4 and 5 should be self-explanatory.
On Line 6, you’ll enter the fair market value of the plan at the beginning and end of the year. It’s unlikely that your plan will have any liabilities. Net Plan Assets are merely Assets minus Liabilities.
On Line 7 you’ll enter the contributions made to the plan during the year, broken down between “participant” contributions and “employer” contributions. Unless you previously filed a Form 5500EZ on the accrual basis, contributions would be reported on the cash basis. Under the cash basis, contributions are reported on the 5500EZ based on the year the funds actually left your business account and hit the 401(k)’s checking account or brokerage account (regardless of the year they were deducted on your tax return). Line 7 also has a space (section c) to report any inbound rollovers received by the plan during the year.
On Line 8, you list Plan Characteristic Codes. Most self-directed 401(k)s will list: 2E, 2J, 2R, 3D. If any participants are self-employed persons not receiving a W2, you’d also list 3B.
Line 9 would be “no,” unless any participants have taken loans from the 401(k). Lines 10 and 11 would be “no.”
Disclaimer: Information provided is for educational purposes only. Nothing herein constitutes legal advice or investment advice. Readers are responsible for their own due diligence in selection of investments, exchanges, and technology platforms.