Stumped filling up form 5500

[realclemsongrad]

[Topic is now in Personal Finance (Not Investing) - tax form question. mod mkc]

Hi All,

Normally this time of the year I file 5500 and I cruise through this in 5 mins. This year got seriously stumped. One of the participants rolled over his 401k to IRA. Now I am trying to fill in, I am not getting the math behind this.

I get the error "Error: The Net Assets End of Year Amount on Form 5500-SF, Line 7c(b) must equal the sum of Lines 7c(a), 8i(b) and 8j(a)."

Translating this to English "End of year assets = Beginning of the year + Gains + Transfers".

Let us take start of the year to be $8000, end of the year to be $10,000 with gains about $2000 and transfer to be $1000 the formula translates to

$10000 (end) = $8000 (start) + $2000 (gains) - $1000 (roll over out)

How in the world will this formula balance? I am so confused. For rollovers is the right one 8j(a) with negative number indicating outflow or does it go into 8d as positive number? But even if it is included in 8d it will only reduce the Net income 8i(b) and wont balance.

What am I missing?

Thanks a bunch!!!

[realclemsongrad]

Could it be i need to subtract the rollovers (out) from the "Other income" 8(b) and use positive number in 8j to indicate transfer from?

Sorry trying to balance this equation

[FullsideCoverman]

The formula balances by definition. In the instructions for Line 8b of Form 5500-SF, it says: “Enter all other plan income for the plan year. Do not include transfers from other plans that are reported on line 8j. ...[Examples omitted for brevity.]... To compute this amount, subtract the current value of all assets at the beginning of the year plus the cost of any assets acquired during the plan year from the current value of all assets at the end of the year minus assets disposed of during the plan year.”

So if at the beginning of the year, the net assets were $8,000, and at the end of the year the net assets were $10,000, and the only distribution/rollover/transfer/etc. was a participant rolling over $1,000 to an IRA, then the net gains must be $10,000 - $8,000 - $1,000 = $3,000.

The rollover out goes in line 8d, not line 8j. In the instructions for Form 5500-SF, there is a note after the instructions for Line 8j: “Note. A distribution of all or part of an individual participant’s account balance that is reportable on Form 1099-R... should not be included on line 8j but
must be included in benefit payments reported on line 8d. Do not submit IRS Form 1099-R with the Form 5500-SF.”

Line 8d flows to line 8h (total expenses). The difference of line 8c (total income) and line 8h goes to line 8i (net income) which is part of the formula you cited.

So in your example, line 7c(a) = $8,000, line 7c(b) = $10,000, line 8j(a) = $0, and line 8d(a) = $1,000. Line 8h(b) = $1,000 (we assume no other distributions or expenses, so the only component of line 8h is line 8d.). To make the math work, line 8c = $3,000. Line 8c is the sum of lines 8a(1), 8a(2), 8a(3), and 8b. We assume no contributions, so lines 8a(1), 8a(2), 8a(3) are all $0, so line 8b = $3,000.

[HomeStretch]

… Translating this to English "End of year assets = Beginning of the year + Gains + Transfers".

Let us take start of the year to be $8000, end of the year to be $10,000 with gains about $2000 and transfer to be $1000 the formula translates to

$10000 (end) = $8000 (start) + $2000 (gains) - $1000 (roll over out)

How in the world will this formula balance? …

Your 401k activity also includes contributions, fees, etc, if any, which I don’t see in your formula.

Your formula doesn’t balance because it is missing some plan activity or one of your $ amounts is wrong. If your starting balance is $8k + gains $2k - transfer out ($1k), this means your ending balance should be $9k. Since the actual ending value is $10k, the difference of $1k means you are missing activity such as contributions or transfers in, or perhaps the gain $ are not correct, etc. Re-review your plan statements or annual plan valuation report from the custodian to find the missing activity or $ amount error.

[realclemsongrad]

The formula balances by definition. In the instructions for Line 8b of Form 5500-SF, it says: “Enter all other plan income for the plan year. Do not include transfers from other plans that are reported on line 8j. ...[Examples omitted for brevity.]... To compute this amount, subtract the current value of all assets at the beginning of the year plus the cost of any assets acquired during the plan year from the current value of all assets at the end of the year minus assets disposed of during the plan year.”

So if at the beginning of the year, the net assets were $8,000, and at the end of the year the net assets were $10,000, and the only distribution/rollover/transfer/etc. was a participant rolling over $1,000 to an IRA, then the net gains must be $10,000 - $8,000 - $1,000 = $3,000.

The rollover out goes in line 8d, not line 8j. In the instructions for Form 5500-SF, there is a note after the instructions for Line 8j: “Note. A distribution of all or part of an individual participant’s account balance that is reportable on Form 1099-R... should not be included on line 8j but
must be included in benefit payments reported on line 8d. Do not submit IRS Form 1099-R with the Form 5500-SF.”

Line 8d flows to line 8h (total expenses). The difference of line 8c (total income) and line 8h goes to line 8i (net income) which is part of the formula you cited.

So in your example, line 7c(a) = $8,000, line 7c(b) = $10,000, line 8j(a) = $0, and line 8d(a) = $1,000. Line 8h(b) = $1,000 (we assume no other distributions or expenses, so the only component of line 8h is line 8d.). To make the math work, line 8c = $3,000. Line 8c is the sum of lines 8a(1), 8a(2), 8a(3), and 8b. We assume no contributions, so lines 8a(1), 8a(2), 8a(3) are all $0, so line 8b = $3,000.

Thank you for such an in-depth answer!. I lost few days of my life trying to figure this out, and I am so impressed by your explanation. From here on back to cruising as no more rollovers.

Once again, I cannot thank you enough for taking time to help me. Much respect!

[realclemsongrad]

… Translating this to English "End of year assets = Beginning of the year + Gains + Transfers".

Let us take start of the year to be $8000, end of the year to be $10,000 with gains about $2000 and transfer to be $1000 the formula translates to

$10000 (end) = $8000 (start) + $2000 (gains) - $1000 (roll over out)

How in the world will this formula balance? …

Your 401k activity also includes contributions, fees, etc, if any, which I don’t see in your formula.

Your formula doesn’t balance because it is missing some plan activity or one of your $ amounts is wrong. If your starting balance is $8k + gains $2k - transfer out ($1k), this means your ending balance should be $9k. Since the actual ending value is $10k, the difference of $1k means you are missing activity such as contributions or transfers in, or perhaps the gain $ are not correct, etc. Re-review your plan statements or annual plan valuation report from the custodian to find the missing activity or $ amount error.

Thank you and yes you are right the error is on how I was computing gains. As indicated by you and @fullsidecoverman, I fixed it. Once again Thank you!!!