By Dr. Jim Dahle, WCI Founder
IRS Form 5500 is an information-only return that must be filled out by 401(k) administrators. Many small business owners are also de facto 401(k) administrators, and they may be required to fill out this form. I have been recommending that physicians use individual 401(k)s instead of SEP-IRAs for a long time. That allows them to max out the account ($69,000 for 2024) at a lower income and doesn't mess up their Backdoor Roth IRA. However, if they are making substantial contributions to the 401(k) or have had it for a long time, they likely need to fill out some version of the 5500 each year. For most of us, that's the 5500-EZ.
It's taken me literally just five minutes to fill out. It's not a big deal, and it's not worth paying hundreds of dollars to a tax preparer to do. In this post, I'm going to show you how to fill out IRS Form 5500-EZ for the typical physician using an individual 401(k). First, some helpful links:
- Here's where you find the form: IRS Form 5500-EZ
- Here are the IRS Instructions: 5500-EZ Instructions
- Here is a helpful tutorial from The Finance Buff. However, it's a few years old. My tutorial today is based on the 2023 form.
Do You Have to File Form 5500?
The good news is you don't have to file this form at all if your individual 401(k) has less than $250,000 in it at the end of the year. If you're only putting a few thousand into the plan each year, it may be decades before you have to do this form. If you're maxing it out each year, it'll probably still be 4-5 years before you have to do it. If you are maxing it out for you and your spouse, however, you may have to start filing after just three years or so. We started our plan in 2013, and the first year we had to file the 5500-EZ was for tax year 2016.
More information here:
Can You Use Form 5500-EZ?
5500-EZ is for a one-participant plan. That means, in the words of the IRS:
“A retirement plan (that is, a defined benefit pension plan or a defined contribution profit-sharing or money purchase pension plan), other than an Employee Stock Ownership Plan (ESOP), which:
1. Covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (which may be incorporated or unincorporated); or
2. Covers only one or more partners (or partners and their spouses) in a business partnership; and
3. Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses).”
As you can see, that means if it only covers you or your spouse, you get to use Form 5500-EZ. If you file it on paper, you send it to:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0020
You can also file your Form 5500-EZ electronically by using the EFAST2 website.
If you have other employees, you are stuck using the 5500-SF (short-form) or, even worse, the real form 5500—both of which are longer, more complicated, and filed electronically.
When Does Form 5500-EZ Have to Be Filed?
According to the IRS:
“Form 5500-EZ must be filed by the last day of the 7th calendar month after the end of the plan year that began in 2023 (not to exceed 12 months in length).”
What does that mean? If you're on the calendar year like most, it means you need to get it in by July 31 of the next year. That means for tax year 2023, it's due July 31, 2024. I make a habit of filling it out the same week Vanguard sends me its little 5500 packet, usually in late March.
What's the Penalty for Not Filing Form 5500-EZ?
It's a massive penalty, and ignorance of having to fill out the form is no excuse. If you haven't filled Form 5500-EZ and you've had more than $250,000 in your solo 401(k), the penalty is $250 per day up to $150,000 for every late 5500-EZ, plus interest.
Luckily, there's a remedy. If you realize you're delinquent in filling out Form 5500-EZ, you can submit Form 14704. That will drop your penalty to $500 per year for every year that you didn't send in 5500-EZ, and it maxes out after three years. Even if you have missed 20 years of 5500-EZs that you were supposed to complete, you only have to pay $1,500 max if you fill out Form 14704.
Here's what WCI guest writer Steffan Weiner wrote in late 2022:
“If you believe you do have a reasonable cause for the late 5500-EZ filing, the IRS offers guidance to avoid penalties. Your reason must show that ‘you used all ordinary business care and prudence to meet your Federal tax obligations.' Example reasons include fire, casualty, natural disaster, lack of access to records, death, severe illness, and incapacitation. Typically, you will be required to provide supporting documentation and to establish facts substantiating your claim of reasonable cause.
The IRS instructions to apply for a reasonable cause can be found here: Penalty Relief Due to Reasonable Cause
If you make a request to waive the penalty due to a reasonable cause and that request is denied, you are no longer eligible to use form 14704. Being that the worst scenario payout using Form 14704 is $1,500 and late 5500-EZs can result in hundreds of thousands of dollars worth of penalties, you should scrutinize this option carefully.”
More information here:
The 1 (Weird) Tax Trick the IRS Hates
3 Big Tax Deductions for Doctors
What Does the Form Look Like?
There are two pages. Here is the complete form for your reference:
How to Fill the Form Out
Let's take it section by section and fill out the form.
Part I
If you're on the calendar year and this isn't the first time you've done this form, then you can probably ignore all of Section I. If this is the first time, check box A(1).
Part II
Section II is pretty easy. If this isn't your first year, pull out last year's form and you can probably just copy most of it. Your plan has a name; be sure to use it. Vanguard sends me paperwork in March each year with the name of my plan. It's “The White Coat Investor, LLC Individual 401K Plan.” Since this is the first plan this business has ever had, its three-digit number (1b) is 001. It first became effective January 1, 2013. Fill out the name, address, and the EIN of your business. (You do have one, by the way; you couldn't have opened an individual 401(k) without an EIN.) The “business code” is used on other forms as well. For a business like WCI, it's 519100. The list starts on page 9 of the IRS instructions.
You can probably ignore lines 3 and 4.
Line 5 for us reads 2, 2, 2, 2, 0. If your spouse isn't in the business, then yours probably reads 1, 1, 1, 1, 0. “Active participants” are basically those who are still working.
Part III
The form starts to get more interesting here. Your individual 401(k) provider probably sent you a form with the information needed to fill out this section. Here's one from years past when Vanguard sent me a 10-page form (don't be intimidated, most pages are blank or boilerplate). Page 5 looked like this:
In those 10 pages, only four numbers were actually needed to fill out 5500-EZ. Two of those numbers were the assets in the plan on December 31, 2016, and on December 31, 2017; in our case, that was $293,701 and $471,720. (You can see those at the bottom of the page). Those go on line 6a columns 1 and 2, respectively. 6b was zero for us (since we didn't have any outstanding 401(k) loans), so 6c just equals 6a.
Line 7 listed that year's contributions. I got the other two numbers I needed from page 7 of what Vanguard sent me:
See those two numbers under the “contributions” section? That's what we're looking for. Line 7a is the employer contribution ($72,000 in our case) and Line 7b is the participant contribution ($36,000 in our case). If you rolled an IRA into your plan, like many docs are trying to do with Backdoor Roth IRAs, that would go on 7c.
Part IV
This section seems a little bit mysterious. You'll likely need to refer to your instructions to get this one right. It's helpful to look at both the Vanguard and the IRS instructions. The Vanguard instructions said:
Vanguard said enter codes “2E, 3D, and 2J” for individual 401(k)s. If you go to the IRS instructions, you'll see the following list:
Clearly, Vanguard is right about 2E as we have a profit-sharing component, about 3D as we have a pre-approved plan (the standard Vanguard one), and 2J as we have a 401(k) feature. As I scanned the rest of the list, the only other one I saw that applied to our plan was 3B since we're self-employed. I included that one with the three others.
Part V
Part V was very easy for us. Lines 9, 10, and 11 are all “No.” In 2023, the IRS added a new requirement for question No. 12 that reads, “If the plan sponsor is an adopter of a pre-approved plan that received a favorable IRS Opinion Letter, enter the date of the Opinion Letter and the Opinion Letter serial number.” Depending on what brokerage you use, the IRS has a list of all those dates and serial numbers.
Here's what that looks like.
Then, you sign the bottom, drop the mic, and walk off stage.
What do you think? Have you filled out 5500-EZ? Was it as easy as I made it out to be? Have you paid someone to do it for you? What did they charge? Do you have any questions about the form?
[This updated post was originally published in 2018.]
Hi,
Silly question regarding filling out Form 5500-EZ.
For year 2019, I contributed $40,000. However, I also accidentally overcontributed in April 2019 for the 2018 contribution by $1600 and realized it within a short time and removed that contribution. So on my 2019 401K statement, it states $40,000 contribution and $1600 distribution.
When I go to fill out Part III of form 5500-EZ, should I still fill out $40,000 for contribution and not fill out anything about the distribution?
Questions 6 asks about “Total Plan assets/Total plan liabilities/Net plan assets, while Question 7 asks about Contributions from Employers, participants, and Others (including rollovers).
Thanks!
It might seem silly, but it’s been over 2 years since I wrote this post and at least a year since I filled out this form. That means I need to go back and do research in order to know the answer. The same research you would do. So take this answer for what it’s worth, which may be exactly what you paid for it.
I would fill it out only counting the real contribution, i.e. the total contribution minus the overcontribution.
2018 contributions don’t go on the 2019 5500-EZ, only 2019 contributions do.
Thanks so much for replying! It still amazes me that as busy as you are, you make time to try to respond to all our questions, and in such a timely manner too! I did not check the box to get notified when you respond, so I just now came back to see that you responded a few weeks ago.
I will fill it out as you suggest. I was concerned that if the amount contributed was now less than $40k (due to the withdrawal/distribution), it would affect what I could contribute up to the max of $56,000. However, that should not be the case because this form doesn’t have anything to do with calculating how much we can contribute, right? This form 5500-EZ tracks our actual transactions for the calendar year, and has no bearing on what we are allowed to contribute based on our income. That is up to us as plan administrators to figure out and get right ourselves. Every year, since we are still allowed to contribute to the previous tax year’s 401k limit up through April 15, people’s contributions for a tax year will often not match up to the amount actually contributed for that calendar year.
Thanks again!
That box isn’t working very well right now. We may not turn it back on. We’ll see.
You’re right that the 5500-EZ doesn’t really have much to do with how much you contribute other than I think how much you contributed is recorded on it.
While employer contributions can be made up to April 15th, I think employee contributions need to be in much sooner. But why not get contributions in as soon as possible instead of as late as possible, giving compound interest more time to work.
Filling out a 5500-EZ for 2019 (I am past the 7/31/20 deadline, but filed an extension on the Federal Income Tax Return which apparently automatically extends the 5500-EZ deadline).
I have a question about
Part III, 7: Contributions received or receivable from:
a)Employers
b)Participants
c)Others
So, does “received” mean actual $ that entered my Solo 401K plan, and “receivable” mean any $ that was actually contributed after Dec. 31, 2019, but designated as a year 2019 contribution? For example:
In 2019:
I made a 2018 EmployER contribution in June 2019. [I include this in 7a?]
I made a 2019 EmployEE contribution to my Solo Roth 401k in September 2019. [I include this in 7b?]
In 2020:
I made a 2019 EmployER contribution in July 2020. [I include this in 7a, since it is was a “receivable”? (Even though this did not actually “enter” my 401K until 2020)]
Thank you very much!
Why does it matter? They go on the same lines.
Yes, you include employer contributions for 2018 on the 5500 EZ filed in 2019 for the year 2018. But no, it shouldn’t be included on the 5500 EZ filed in 2020 for the year 2019.
Yes, your 2019 employee contribution goes on line 7b for your 2019 5500 EZ filed in 2020.
Yes, your 2019 employer contribution goes on line 7a, even though you put it in in July 2020.
As the owner/participant of a SCorp sponsored Solo 401k, I say its about time someone provided some guidance on the 5500 form. 10yrs ago this information was non-existent, and my experience with the IRS was they didn’t think it was their job to explain their own forms.
I am currently winding down my down my company and preparing to file the final 5500EZ (2020 is not yet available). If you have properly distributed the plan assets, the end of year balance you enter on the final form is always $0. I had always assumed I would enter the total prior to distribution, but that is wrong, you must enter $0 or it isn’t a final filing.
Here are a few things I wish I knew when I started my business:
I thought incorporating would only make sense if I had > $50k income, but it can make sense at much lower income levels.
Start that 401k early. It may seem like your business is too small, but it costs nothing to start a retirement plan. I could have deferred more taxes had I started earlier.
Open a Roth IRA as soon as possible. Get the 5yr waiting period started now. Its just another tool in the tool shed.
When you pick a solo 401k plan, choose the most flexible options such as no eligibility requirements and minimal or no vesting. My plan was offered through TDA and included the option to perform qualified in-service distributions before age 59.5 as long as those funds had been in-plan for 2yrs. This nifty option allowed me to directly fund a personal Roth account pre-retirement.
Keep a tax season checklist that includes the 5500EZ, even if you are below the filing threshold. I went years without the need to file this form, but by the time my plan assets exceeded the threshold, I had already forgotten there was a filing requirement! My rude surprise was a demand letter stating over 35k in penalties – for an informational return! I had a very anxious few hours talking to different IRS people before an agent mentioned form 14704 Delinquent Filer Penalty Relief Program. I still had to pay over 1k, but what a huge sigh of relief. Had I not made that one additional phone call, I would have lost a good chunk of my retirement.
Thanks for sharing your experience.
Does anyone know if the (2) End of year values for line 6a in Part III of the 5500-EZ should include contributions made after the calendar year concludes but designated for the prior plan year?
For example, if my solo 401k statement shows a 12/31/19 value of $300,000 and if $15,000 of new money was added 02/15/2020 but as a contribution for the 2019 plan year, should line 6a (2) End of year = $300,000 or should it = $315,000?
My guess is $315,000 is the correct entry because the $15,000 was added for the 2019 plan year and would be an asset for that year. The 5500-EZ instructions aren’t clear on this item as I read them.
From the instructions:
https://www.irs.gov/instructions/i5500ez#idm140490167479424
It’s not super clear, but I’d just take them at their literal word and put in the balance on 12/31. If you didn’t put money in there until 1/3, that wouldn’t be included in 6 (but would in 7). “receivable”
I’d put $300,000 in your example.
From what I’ve read, one can use either the accrual method or the cash method when completing this section, but should be consistent from year to year.
https://www.retirementplanners.com/post/the-right-way-to-file-the-form-5500
Seems reasonable.
What happens if I have a i401k with Roth subaccount? Do I have to file 5500EZ for each? OR would I combine them into one 5500EZ?
I’m asking this same question to my accountant and TD Ameritrade.
Combine them.
Is there no place on the form to enter the TrustID/Plan ID? I only see a place to enter the name of the plan but not the trust ID associated with the plan. I wonder why the IRS does not want/need this information? The form asks only for the adopting employer EIN. Thanks
You’re asking for MORE paperwork?
I have searched all over and cannot find the answer to this, so hope maybe you can answer.
If you transfer solo 401(k) servicers i.e. Fidelity to Vanguard, is it required to File Form 5500EZ for each plan for that year (as one plan terminating and another plan starting) even if assets are < $250K? The FIdelity plan was plan number 001, and the vanguard is plan number 002.
I believe it is. That’s one reason why I always change on January 1st when changing plans.
If I had an old plan with an old financial advisor and an old custodian last year that was terminated, and I opened up a new plan last year that I am managing myself, would I need to have the old custodian/financial advisor file a 5500 for the previous plan that was closed if the value was less than $250,000 at the time it was closed?
I don’t think there is any filing requirement before $250K, even if you close a plan but I’d pour over the 5500 instructions to be 100% sure of that if I was doing the paperwork myself.
Great post. I often wait until taxes are done to decide how much more I can contribute as the employer. Some amount I contribute in 2021 and the remaining in 2022 for the 2021 year. Vanguard obviously only reports the amount employer contributed in 2021 in their summary sheet.
For section 7A, do we only fill out the amount contributed in 2021 for the year 2021 and ignore the contribute made in 2022 for the 2021 year? Or do we add both amounts together?
Thanks!
[See next response]
thanks for your reply.
to confirm, the employer contribution from 2022 for the 2021 year should be included in that amount? this amount would not reflected in the vanguard 2021 summary form.
Well, let’s read the instructions.
https://www.irs.gov/pub/irs-pdf/i5500ez.pdf
Here’s what they say:
Lines 7a and 7b. Enter the total cash contributions received and/
or receivable by the plan from employers and participants during
the plan year.
Line 7c. Enter the amount of all other contributions including
transfers or rollovers received from other plans valued on the
date of contribution.
According to that, I’d say it was whatever was contributed during the plan year. For most plans, that’s the calendar year. So I’m going to reverse my prior answer and say put on there what Vanguard sent you. Although I’m not sure if “receivable” includes what is coming. I guess you’ll have to call the IRS or find someone smarter than me if you want a definitive answer to your question. Not sure anyone really cares honestly. This is just an informational return remember.
Back in 2020 I did speak w/someone @ the IRS, but did not receive a conclusive answer, just a literal parroting of the form’s instructions.
For my past 3 submitted 5500-EZs (including 2021’s which I Efast/IFiled a few days ago), I went with what you wrote in #27 above in this thread. E.g. for my 2021 5500-EZ I just submitted, I included on Line 7a the Employer Contribution that I contributed a few weeks ago (June 2022) to my Solo 401K for 2021.
Should I continue with this “Receivable-for-the Reported-Year-but-Contributed-in-the Following-Calendar-Year” treatment to maintain reporting consistency?
Potentially complicating this in the future is that I will soon be switching providers of my Solo 401K Plan from Ameritrade (since they are discontinuing the Solo Roth 401K and loan options), and whatever new provider I choose may not reflect post-Year contributions in their Yearly Summary Report (though I assume the Summary Report is for informational purposes only and does not get submitted to the IRS or DOL).
I think I would.
The main problem people run into with 5500-EZ is not filing it, not filing it wrong. I mean, at the end of the day it’s just an informational return. Do the best you can. If they audit you, they’ll tell you how they want it filled out!
For the plan administrator, IRS asks for a name and EIN number. The company has an EIN number, but as the plan administrator, I do not have my own EIN. What do you in these scenarios? Just write the social?
Do those who use solo 401Ks have an EIN for the company and for an individual who is the plan administrator?
I’d put the company EIN I think.
Form SS-4 allows you to request an EIN as a Plan Administrator. That’s probably what the IRS is expecting for administrators.
Thanks for this post. I am closing my solo K. For line 5 do you think it is reasonable to put:
5a(1) 1
5a(2) 1
5b(1) 0
5b(2) 0
c 0
Yea, looks fine.
Lastly, if closed 7/22/22. I can use EFAST with 2021 form (2022 not out yet), and simply specify: “For calendar plan year 2021 or fiscal plan year beginning (1/1/22) and ending (7/22/22)”. I.e. it would not make sense to wait for 2022 form to come out, given I have 7 months from closure to file final 5500 EZ?
Thanks!
Rob
Good question. Not sure what the proper thing to do is, but if you can file it now and the only form available is 2021, then you should be good to go using that.
I currently have an individual 401K through Schwab. I originally had a retirement via the CMG that I worked for however after a change in contract at my hospital I had to open my own individual 401K which required that I roll all the funds into the individual 401K resulting in the balance being over 250k. Unfortunately I was unaware of the requirement to fill out the 5500EZ and Schwab has never sent me info regarding the 5500EZ. So now I have at least 4 years without filing and have to sort out how to move forward…. Schwab is not being very helpful and does not have any packets like others have indicated other entities provide yearly for filling out the 5500EZ. Current plan is to contact someone to help get this fixed before I start doing them myself in the future, however any suggestions would be appreciated.
The IRS has a “Fixit Guide” See https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide
Line 12 discusses what to do if you haven’t filed the 5500EZs. It begins with File All Delinquent Returns.
See also the IRS Penalty Relief Program here https://www.irs.gov/retirement-plans/penalty-relief-program-for-form-5500-ez-late-filers. This is a special program for one-participant 401k plans.
They will charge you for the penalty relief, up to $1500. The instructions say to write in red on each delinquent form “Mark Check Box D, for the IRS Late Filer Penalty Relief Program, on Part I of Form 5500-EZ. You must write in red at the top of each paper return: “Delinquent Return Filed under Rev. Proc. 2015-32, Eligible for Penalty Relief” for years without Check Box D.”
See also the IRS FAQs on this here. https://www.irs.gov/retirement-plans/form-5500-ez-delinquent-filing-penalty-relief-frequently-asked-questions
Of note: the penalty relief program will charge you $500 per 5500EZ filed up to $1500 max for 3 or more returns filed at the same time. Otherwise the penalties are much higher. From my reading, the four returns you have should only cost the $1500. The FAQs seem to give good information.
The penalties are high so you probably want to get this done as a voluntary act rather than wait for the IRS to send you a letter. See Q4.
Wow. Great comprehensive reply. I think I’d hire an accountant to sort all this out but clearly it is DIYable.
Yeah, I like to read the “what can go wrong stuff” long before I read the “how do I do it right stuff.” Shows me where the booby traps are and for me at least makes them easier to avoid. And old friend, a lawyer once told me about dealing with the IRS: “Declare everything, including the penny you found on the sidewalk. Then deduct the cost of shoe leather to pick it up. “
Question about mailing in the form 5500. I messed up last year for my solo 401k so mailed it in to do the forgiveness program. Looking at the Department of labor website and it is saying it has to be filed electronically but says eligible employers can still file a paper copy. Are you considered eligible for a solo 401k? Can I still mail the form? Seems simpler.
Thank you!
“Beginning January 1, 2021, the Form 5500-SF must no longer be used to electronically file “one-participant” plan or foreign plan annual returns. Employers who sponsor one-participant plans or foreign plans must file Form 5500-EZ electronically using the Department of Labor’s EFAST2 filing system. Only employers not subject to the IRS e-filing requirements under Treas. Reg. 301.6058-2 may file paper Form 5500-EZ with the IRS.”
https://www.efast.dol.gov/fip/pubs/help_5500EZ.html#:~:text=Beginning%20January%201%2C%202021%2C%20the%20Form%205500%2DEZ%20can,overview%20of%20how%20to%20file.
I’ve definitely mailed in 5500-EZ before without any issues, but that was before January 1, 2021. Based on your quote, sounds like you need to use EFAST2.
silly question perhaps–maybe in the vein of how-to-be-a-grown-up:
If the stakes are so high regarding not filing, how do we prove that we mail in the 5500-EZ each year? Should I use registered mail?
For critical mailing now, I supplement a USPS mailing by photographing the sealed stamped envelope in the post office with geotracking (GPS/cellular) turned on and displayed at the slot, along with an affidavit that says I mailed it on the date at the post office with postage pre-paid with the photo inserted into the affidavit, print and sign it and keep it with the 5500 file.
I have not had any issues with IRS documents but I do considerable work with another agency and more than once I have been dinged because it claimed I didn’t send documents they needed. The agency backs off when they get the affidavit and a copy of the original documents. It’s a minor pain and certainly cheaper than the ever increasing price of certified mail. I also upload the affidavit with the postal complaint form when this happens. Not sure it does any good, though.
That would do it. 5500-EZ is filed electronically now though.
https://www.efast.dol.gov/fip/pubs/help_5500EZ.html
This is an interesting publication. It appears to be inconsistent with the IRS 5500EZ instructions. The 5500EZ instructions say that you may file paper if you file less than 250 forms (https://www.irs.gov/pub/irs-pdf/i5500ez.pdf, How To File, p2-3).
For electronic filing you can after 2019 using EFAST2 and its is mandatory if you are required to file more than 250 forms of any type with the IRS, including information returns, 1040s, W2, 1099s, etc.) I file a 1040 and associated schedules, 1099Rs from the i401k plans (max of 4 per year), and a 1041, and a separate 1065 with 2 K1s. By my count, based on last year that’s 7.
Where it gets sticky and contradictory is the IRS guidance differs from the DOL guidance, but DOL gives a reference to Treas. Reg. 301.6058-2. What does that say?
26 CFR 301.6058-2(a) says, you must file it if there is more than 10 forms filed.
But it also says,
Commissioner may direct the type of electronic filing and may also exempt certain returns from the electronic requirements of this section through revenue procedures, publications, forms, instructions, or other guidance, including postings on the IRS.gov website.
The Rulemaking published in the Federal Register is also ambiguous, in one place saying the limit is 10, another 250, and only for forms required to be filed in 2024, but then elsewhere states forms for 2023 are exempt (but we file these in 2024).
As for Paul’s comment, I tried once upon a time to set up EFAST2 and something didn’t work and all the King’s Horses and all the King’s men couldn’t put EFAST login back together again. I gave up. I now used login.gov for other agency access, but it still doesn’t work for EFAST2. If I try it just says change your password, and if I do that, then it crashes the other agency access, so I just don’t want to deal with government programmers and I must use the login.gov for the work I do for the other agency.
I suppose I’ll have to try to figure this out this year, but I just mailed my 2023 5500EZ this week.
Why not just file online?:
https://www.efast.dol.gov/welcome.html
I’ve filed online the last few years.
I think you’re right. You can file 5500EZ on paper if you are eligible to file 5500EZ, but once you set up on EFAST and file one electronically, you must continue on that path. Which is why I still file them on paper.
Question, I file as a sole proprietorship (I am a 1099 physician). I (until recently) used a financial advisor. We opted to create an employer 401k for me and an employee 401k for my wife, so we could do the $66,000 tax deferred savings for me and the $22,500 for her. I file as a sole proprietorship and the 401Ks were created with an EIN associated with my name. I was told however, by my CPA, that an LLC was needed to establish payroll to employ my wife, and there is an EIN associated with that LLC as well. So… I am now breaking away from my financial advisor and setting up 401Ks for both us, along the same employer/employee lines, with Vanguard, which we will roll the old ones into, so I can manage them myself moving forward. In the process of doing this, will I be using the EIN first associated with me, and used to set up the 401k with the financial advisors’s company, or do I use the EIN associated with the LLC?
Many thanks for any information. No one seems to be able to answer this for me.
Your CPA is wrong. A sole proprietorship can certainly have a solo 401(k). But you do need an EIN. But whether you decide to do a sole proprietorship, partnership, LLC, or corporation, use the EIN associated with that entity when you set up the 401(k).
I think you can just use a solo 401(k) if you have no other employees. I’m not 100% sure you can do that when your spouse is an employee and not a partner, but I think you still can. You might want your spouse to be a partner anyway so consider that.
Thank you very much for the response and for all you do to educate and empower our community.
Quick f/u question as this is only my 2nd time filing the form.
For Section III Line 7c –
“See those two numbers under the “contributions” section? That’s what we’re looking for. Line 7a is the employer contribution ($72,000 in our case) and Line 7b is the participant contribution ($36,000 in our case.) If you rolled an IRA into your plan like many docs trying to do Backdoor Roth IRAs, that would go on 7c.”
Why would you roll in IRA into a 401K? IRA is typically post tax money, and 401k pre-tax.
I did a backdoor roth by converting a traditional IRA to a Roth IRA. So money didn’t enter the 401k. In that case, line 7c would be 0? Thanks!
Traditional IRAs are pre-tax. Roth IRAs are post-tax. In order to facilitate not getting pro-rated on a Backdoor Roth, it can often make sense to roll a traditional IRA into a 401(k) to avoid that pro-ration. If someone happened to do that, this is where that would go. If you did a Backdoor Roth, you didn’t necessarily do that so it would be $0.
Any advice on how to fill out 5500EZ Part V #12 where it asks for a favorable IRS opinion letter date and serial number? My I401k is with Schwab.
John,
The Plan Document Provider (who provides the adoption agreement) has to give you a copy of a letter from the IRS saying their prototype plan is approved by the IRS.
I think my old Etrade plan did provide such a document, but I don’t recall needing it.
I do know that Ascensus stated there were upcoming changes to Form 5500EZ.
This question is new. It was not on the f5500EZ (2022) version which ended with 11 questions. I guess I should pay more attention to the Ascensus correspondence and emails!
In the plan documents, in my case, the Basic Plan Document, toward the end, you will find (should find?) an IRS Letter describing the Prototype Plan addressed to the Plan Document Provider. The IRS Letter contains a Letter Serial No: xxxxxx, and is titled something like Standardized Pre-Approved Profit Sharing Plan a date and addressed to the company providing the plan, in my case Ascensus LLC of Dresher, PA. This information is in the header of the letter. An excerpt of the letter follows.
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable for use by employers for the benefit of their employees under Internal Revenue Code (IRC) Section 401.
Further down the letter, the IRS states the issuer must proved each employer adopting the plan a copy of the IRS letter, along with the approved plan, copies of amendments including dates of adoption, direct contact information including address and telephone number of the provider.
I’m glad you mentioned it, because otherwise I might have missed this. You’ve done me, at least, a great service.
I just checked the f5500EZ from 2022. This is a new question.
Look in your Plan Documents and Adoption Agreement. You will find a letter toward the end of the Plan Documents from the IRS addressed to the Plan Provider. In the Header information on the letter in the midst of the stuff, there will be a line “LETTER SERIAL No:” and just below that a Date of Submission.
The IRS tells the Prototype Plan Providers they must give you a copy of the letter which will begin with a sentence that says, in Ascensus’ plan, “In our opinion, the form of the plan identified above is acceptable for use by employers for the benefit of their employees under Internal Revenue Code (IRC) Section 401.
Thanks for pointing this change out. I might have not noticed this. Ascensus has informed us that there are ongoing revisions to the 5500 series forms.
The Schwab customer rep was able to help me locate this letter. Thank you for the reply!
The link to the list of brokerage opinion letters seems to be broken? I had a fun time a couple months ago trying to track that down for mine.
That link is fixed. Thanks for the heads up.
Ah. That’s one of the ones I found when I was looking. That particular one doesn’t include Fidelity, presumably because they’re on a slightly different schedule.
Hi all:
Wondering if I got bad advice from E*Trade. I have a solo 401k plan with vanguard. I am trying to role it over to a solo 401k plan at E*Trade.
My current plan is sequence number 001 at Vanguard.
I was told at E*Trade since it is a new plan (ie xyz NEW solo 401k) I should use sequence number 001. However it is still obviously based on the same EIN. So should it be 001 or 002?
Thanks!
Not 100% sure and doubt any one really cares. I can’t recall if the plan number changed when we changed providers. My recollection is that it did. You could get a second opinion from a 401(k) advisor or TPA if you really care. We keep a list of them here:
https://www.whitecoatinvestor.com/retirementaccounts/
FWIW, I kept the same Plan Seq. # (001) when I moved my Solo 401K to E*Trade a couple of years ago.
Thanks that seems to be the correct answer.
I got bad info from E*Trade. They also said it was a new plan when it isn’t.
I’ve given up and am just staying with vanguard.
Thanks for providing this info. You guys are providing a great service. When I discovered this requirement through a previous post you wrote, I found that I was required to fill out this form and neither my CPA nor my brokerage firm was aware of this requirement! Thank you!
I’ve always entered code 2R as well since you can decide how the money is invested inside the 401k.
I kept my plan number the same when I removed Etrade as custodian and moved everything over to my own plan. I did change the name of the plan slightly (added the word Restated) to the plan name to distinguish between the custodians and did not sign the plan Amendments Etrade wanted to insure there was a paper trail that they were no longer the custodian and their Plan documents were no longer valid and had been superseded by the new plan and plan documents.
Dumb question, but are we 100% sure that the EIN that goes onto this form is the company’s EIN (for instance, my LLC that manages the i401K) and not the plan’s EIN itself? I only ask because my CPA said it is the plan EIN that I should use when doing the 5500EZ.
Sorry to bother.
Got a crummy story to share about something that occurred while separating from my less-than-magnanimous former financial advisor. Last year we seperated from our old advisor and had them close out our 401K (my wife and I, LLC, S-corp, just for context) and I personally rolled it into a Vanguard i401K I opened for us during my transition into DIY. Naturally, I new I would be doing the 5500EZ this year on my own (and diligently learned the in’s and out’s of it with Dr. Dahle’s wonderful information). But it was never made know to me by my old advisor that I would need to also file a 5500 this year with the CLOSING of the old account. They didn’t tell me this. They didn’t do it for me after closing it. And they didn’t send me any information to do it myself (like a good custodian/broker will). Were it not for THIS article, and the wonderful comments of the above readers, I would not have known that I need to ALSO file a 5500EZ for that old 401K.
So I emailed them. Over and over and over. Radio silence. Elusive responses. A thousand reasons why they were not able to provide me with the information needed (about the old plan) to complete the 5500 for it.
I ultimately did get the information from them and will be able to file it, but it took a while, and has been a painful experience.
And I realized something disturbing. This “professional” company (and it was indeed a BIG financial advisory firm) was going to willingly, knowingly, I imagine even deliberately (punatively?) allow me to walk right into a tremendous fine from the IRS, because I had seperated from their firm and the 401K they managed. Rather than doing the right thing and trying up all loose ends, or atleast informing me that the loose ends needed to be tied up.
Very poor business practices.
Just wanted to share that story. One more way the financial industry can get you, even when you are on the way out the door.
Had a similar experience with my past i401k company. The decided they weren’t going to accept any contributions above $23,200 when I could have contributed 19,500 + 6,500 ($26,000) in deferred plus catch up, and ZERO for the Employer contribution. Claimed customers demanded it. They relented and said I could fed-ex overnight p1 and the funds would be available the next day. They then told me the COVID prevented them from doing that and it would take 3-4 weeks to make the funds available. I dumped them and went solo i401k, as in a “checkbook” 401k with an independent IRS Prototype plan, became my own custodian and record keeper, set up brokerage accounts at two different companies and continued funding. It took me two years to liberate the funds and get them moved, something that should be done in weeks at most, but they continued to reinvest and I continued to fund the new brokerages. Now, everything’s consolidated, and for better or worse, I’m in charge. I am in a happier place for it, too.
For your question on the 5500EZ. According to the IRS instruction for Line 2, it is the sponsoring employer. 2023 instructions page 5,
“Enter the employer’s nine-digit employer identification
number (EIN). For example, 00-1234567. Do not enter a social
security number (SSN).
Employers without an EIN must apply for one as soon as
possible. EINs are issued by the IRS. You can apply for an EIN”
I’m pretty sure that we should be using the Sponsoring Employer’s EIN based on that information. Just the same, I keep hard copies of all IRS instructions, highlighted with 27 color glossy photographs with circles and arrows and a paragraph on the back of each one.
The next question 3 is the one I’m not sure about. The 5500EZ form says to enter the Plan Admin’s information and the Plan Admin’s SSN, unless the Admin is the same as the employer identified in 2 (the sponsoring employer). As I am the owner of the LLC sponsor and the LLC is a disregarded entity, which passes through to me, and I am the Plan Admin, as well, I have been writing Same per the instruction. I’m not 100% certain this is right, but I’ve been doing it that way for years and if it’s wrong, I’ll amend what forms I have to and have no problem with it, but this is a topic I haven’t seen discussed. In Plan Adoption agreement, I signed on behalf of the LLC (Plan Sponsor), so I assume this is ok absent further information. I think I asked Ascensus about this when I switched to their IRS Prototype Plan documents and they thought this was ok.
I think you’re fine doing that.