5500 solo 401k reporting question

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Doohop65
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5500 solo 401k reporting question

Post by Doohop65 »

This may be a silly questions but I can’t find the answer from my research on the 250k requirements.

I am self employed and have a solo 401k. As Jan 1 the plan had less than 250k. I then contributed funds in March to my 2020 contribution which pushed me over the 250k limit.

My question is do I need to file form 5500 for tax year 2020 or not until tax year 2021?
fabdog
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Re: 5500 solo 401k reporting question

Post by fabdog »

From the form 5500-EZ instructions
Who Does Not Have To File Form 5500-EZ
You do not have to file Form 5500-EZ for the 2020 plan year for a one-participant plan if the total of the plan's assets and the assets of all other one-participant plans maintained by the employer at the end of the 2020 plan year does not exceed $250,000, unless 2020 is the final plan year of the plan. For more information on final plan years, see Final Return, later.Example. If a plan meets all the requirements for filing Form 5500-EZ and its total assets (either alone or in combination with one or more one-participant plans maintained by the employer) exceed $250,000 at the end of the 2020 plan year, Form 5500-EZ must be filed for each of the employer's one-participant plans including those with less than $250,000 in assets for the 2020 plan year.Note. You should use the total plan assets as listed as of the end of the plan year on line 6a(2) of this form to determine whether the plan(s) assets exceed $250,000. If an employer maintains one or more one-participant plans, the total assets of all one-participant plans combined must be counted towards the amount of $250,000
https://www.irs.gov/pub/irs-pdf/i5500ez.pdf

Since you made contributions allocated to 2020, that pushed your 2020 plan balance above $250K, I would file

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Re: 5500 solo 401k reporting question

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (tax reporting).
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livesoft
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Re: 5500 solo 401k reporting question

Post by livesoft »

I would suggest you file as well. It is pretty trivial to do so.
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terran
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Re: 5500 solo 401k reporting question

Post by terran »

I had the exact opposite reaction as fabdog and livesoft to what fabdog posted. "if the total of the plan's assets and the assets of all other one-participant plans maintained by the employer at the end of the 2020 plan year does not exceed $250,000" seems pretty clearcut and matches what my understanding has always been, which is that filing is only required for a year in which the balance on December 31 of the year for which you're filing exceeds $250,000.
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MP123
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Re: 5500 solo 401k reporting question

Post by MP123 »

terran wrote: Sat May 15, 2021 2:31 pm I had the exact opposite reaction as fabdog and livesoft to what fabdog posted. "if the total of the plan's assets and the assets of all other one-participant plans maintained by the employer at the end of the 2020 plan year does not exceed $250,000" seems pretty clearcut and matches what my understanding has always been, which is that filing is only required for a year in which the balance on December 31 of the year for which you're filing exceeds $250,000.
I tend to agree with this. 5500-EZ asks for the balance at the end of the plan year which would be Dec 31st. If you make a contribution in March attributed to the prior year then the plan balance on Dec 31st would still be what it was on a cash basis.

But the instructions for 5500-EZ say:
Part III — Financial Information
Note. The cash, modified cash, or accrual basis accounting methods may be used for recognition of transactions in Part III, as long as you use one method consistently.
Which seems to leave open other ways to account for contributions made after the end of the year if you choose to.

That said, it's easy to file online and even if you aren't required to file you still can.
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Doohop65
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Re: 5500 solo 401k reporting question

Post by Doohop65 »

Thanks for the reply folks. I’m not sure I know any more than I did before I read the form but it seems sound advise to just file the form. It’s amazing the penalties for failing to file and I don’t want to deal with that.
niceguy7376
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Re: 5500 solo 401k reporting question

Post by niceguy7376 »

What happens in the below example?
Balance as of Mar 15 th 2021 - 210K

Contributed 19K on Mar 15 2021 for 2021 year - 230k

Investment grows to 250K for one day in May 2021 (7th) but now down to 247K on 5/14/21

Should 5500 be filed for May 7th date?
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tfb
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Re: 5500 solo 401k reporting question

Post by tfb »

niceguy7376 wrote: Sat May 15, 2021 8:37 pm What happens in the below example?
Balance as of Mar 15 th 2021 - 210K

Contributed 19K on Mar 15 2021 for 2021 year - 230k

Investment grows to 250K for one day in May 2021 (7th) but now down to 247K on 5/14/21

Should 5500 be filed for May 7th date?
Pascal's wager. It's easy enough to file one when you're not required to file. The penalty is huge if you don't file when you're required to file. So when in doubt, file one anyway.
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DebiT
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Re: 5500 solo 401k reporting question

Post by DebiT »

My motto in these situations is, which mistake will I regret more, or less? File. You won’t have anxiety from that decision. Bet you will if you don’t.

(As a now single person, my anxiety is that I’ll be in a coma and not file. I’ve told both sons, and it’s in the front of my if I’m dead / if I’m in a coma book, along with “pay my COBRA, sign me up for Medicare!).
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Artful Dodger
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Re: 5500 solo 401k reporting question

Post by Artful Dodger »

niceguy7376 wrote: Sat May 15, 2021 8:37 pm What happens in the below example?
Balance as of Mar 15 th 2021 - 210K

Contributed 19K on Mar 15 2021 for 2021 year - 230k

Investment grows to 250K for one day in May 2021 (7th) but now down to 247K on 5/14/21

Should 5500 be filed for May 7th date?
It doesn’t matter that your investment reached $250K on May 7th. What matters is the account balance on the last day of the plan year. If your plan is set up a calendar year basis, you only need to concern yourself with the balance on 12/31. The 5500 is due 7/31.

OP, I think I’m with most others and would simply use the 12/31 balance, but if you’re worried at all, the 5500EZ is easy enough to file.

My plan is with Fidelity, and they send me an annual valuation summary two months prior to the filing date.
SuzBanyan
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Re: 5500 solo 401k reporting question

Post by SuzBanyan »

The current guidance is Publication 560 at page 15, which says, with respect to Employee contributions:

“You generally apply your plan contributions to the year in which you make them. But you can apply them to the previous year if all the following requirements are met.
1. You make them by the due date of your tax return for the previous year (plus extensions).
2. The plan was established by the end of the previous year.
3.The plan treats the contributions as though it had received them on the last day of the previous year.
4. You do either of the following.
a. You specify in writing to the plan administrator or trustee that the contributions apply to the previous year.
b. You deduct the contributions on your tax return for the previous year. A partnership shows contributions for partners on Form 1065.”[emphasis in bold added]

The concern is that contributions, even if made in a timely manner in the next plan year, are deemed to have been made on the last day of the previous year. So, if 12/31 balance plus contributions attributed to that plan year are greater than $250,000, the 5500 form should be filed.
In any event, as DebiT stated, which would you regret less filing a year early or filing a year late? File.
donall
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Re: 5500 solo 401k reporting question

Post by donall »

You should receive an Annual Valuation Statement from your solo plan custodian. If you did not, you need January 1, 2020 and December 31, 2020 amounts. If the December 31, 2020 amount is $250,000 or more, file form 5500! If in doubt just file, as the form will be one of the easiest IRS forms you will ever file. There are big penalties for not filing and when you should have.
harikaried
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Re: 5500 solo 401k reporting question

Post by harikaried »

I believe at least for Fidelity Annual Valuation statements, the reported start and end balances match up with Cash (instead of Accrual) accounting.
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