Closed my solo 401(k) - Did not file 5500-EZ

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Topic Author
aum
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Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

[Moved into a new thread from: Closing a solo 401k --admin LadyGeek]

I closed my solo 401K last year on 3/10/2021 but was not aware that I had to file 5500-EZ. It was around 170K(<<250K) and was rolled over to IRA account. Since my account never had 250K, I never had to file in the past but just learned from this thread I had to file on closing the solo 401K regardless of the balance.

What are my options? How do I rectify this without severe penalty impact?
toddthebod
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Re: Closing a solo 401k

Post by toddthebod »

aum wrote: Tue Aug 23, 2022 6:10 am I closed my solo 401K last year on 3/10/2021 but was not aware that I had to file 5500-EZ. It was around 170K(<<250K) and was rolled over to IRA account. Since my account never had 250K, I never had to file in the past but just learned from this thread I had to file on closing the solo 401K regardless of the balance.

What are my options? How do I rectify this without severe penalty impact?
There's a box you check on the form for a late filing that will allow you to pay "only" a $500 penalty.
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Topic Author
aum
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Re: Closing a solo 401k

Post by aum »

HomeStretch wrote: Tue Aug 23, 2022 7:00 am
aum wrote: Tue Aug 23, 2022 6:10 am What are my options? How do I rectify this without severe penalty impact?
The IRS has a Penalty Relief Program for late Form 5500-EZ filers (see link, below). In addition to checking the late filing box, the IRS instructions say to submit the late Form 5500-EZ (on the 2021 Form) with Form 14704 + a $500 penalty check to the address given in the link. Mail it with POD and keep a copy for your files.

You want to do this before the IRS notifies you that you are late in filing to avoid the daily penalty assessment. Your filing deadline was 10/31/21 so your cumulative daily penalties to-date would be steep (~$74k).

https://www.irs.gov/retirement-plans/pe ... ate-filers
Thank you! Is there a way I can do this online? Many thanks to OP for posting this question! Also wouldn't the deadline be 7/31/2022 in my case as stated in this link?
https://www.efast.dol.gov/fip/pubs/help_5500EZ.html If yes, then I might have missed it by 22 days and in that case is there a way to ask for a penalty waiver for that $500? It mentions 2.5 months extension but that had to be requested before deadline.
MikeG62
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Re: Closing a solo 401k

Post by MikeG62 »

aum wrote: Tue Aug 23, 2022 7:36 am
HomeStretch wrote: Tue Aug 23, 2022 7:00 am
aum wrote: Tue Aug 23, 2022 6:10 am What are my options? How do I rectify this without severe penalty impact?
The IRS has a Penalty Relief Program for late Form 5500-EZ filers (see link, below). In addition to checking the late filing box, the IRS instructions say to submit the late Form 5500-EZ (on the 2021 Form) with Form 14704 + a $500 penalty check to the address given in the link. Mail it with POD and keep a copy for your files.

You want to do this before the IRS notifies you that you are late in filing to avoid the daily penalty assessment. Your filing deadline was 10/31/21 so your cumulative daily penalties to-date would be steep (~$74k).

https://www.irs.gov/retirement-plans/pe ... ate-filers
Thank you! Is there a way I can do this online? Many thanks to OP for posting this question! Also wouldn't the deadline be 7/31/2022 in my case as stated in this link?
https://www.efast.dol.gov/fip/pubs/help_5500EZ.html If yes, then I might have missed it by 22 days and in that case is there a way to ask for a penalty waiver for that $500? It mentions 2.5 months extension but that had to be requested before deadline.
I am almost certain it cannot be done online.

With regard to your question about asking for a penalty waiver, make sure you read the paragraphs under "reasonable cause for late filing".

"You may request penalty relief due to reasonable cause, as an alternative to submitting late returns under this delinquent filer program. Request reasonable cause relief by attaching a statement to your delinquent return , signed by a person in authority, stating your reasonable cause for the untimely return.

Please note that if the request is denied, you will receive a penalty notice (CP 283) and the return will no longer be eligible for this delinquent filer program
."

FWIW, I would not expect a "I didn't realize I needed to file a form 5500" will meet their list of acceptable reasons for late filing.
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HomeStretch
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by HomeStretch »

The 7/31/22 filing deadline doesn’t apply to your 3/10/21 plan termination. 7/31/22 was the deadline for filing an annual Form 5500-EZ for Solo 401k plans with assets of $250k+ as of 12/31/21.

If your plan termination date was 3/10/21, your final Form 5500-EZ filing deadline was 10/31/21. The filing deadline is the end of the 7th month following the plan termination date (which is the date the plan assets were $0 after transferring out the plan assets).

The IRS link in my prior post states to mail your package (transmittal form, final Form 5500-EZ and $500 check.
Topic Author
aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

Thank you all for the replies. I guess the best case in my situation is to pay that $500 penalty and rectify my error.
HomeStretch
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by HomeStretch »

I think that makes sense to do so ASAP. There have been some posts this year about the IRS assessing penalties for delinquent Form 5500-EZ filings. Alan S. had a good post about increased enforcement in this thread:
viewtopic.php?p=6700911#p6700911
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cowdogman
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by cowdogman »

Hold on!

See my reply in the other thread--quoted below. Did you really terminate your plan, or just rollover the funds?
Few things:

1. I'm not sure what you mean by "closing your account" at Vanguard. You may have moved your 401(k) money but (1) that doesn't close the Vanguard account and (b) much more importantly it doesn't terminate the plan. Accounts are maintained under the plan, but they are NOT the plan. To terminate the plan, the sponsor should formally terminate the plan in writing. This writing should be kept in your tax files. The 7 month deadline for filing the EZ-5500 starts on termination of the plan.

2. Be very care of the "successor plan rule" if you intend to create a new 401(k) within 12 months of the termination of the current plan.

3. If the plan is not yet terminated, I would look carefully at the "in service rollover" rules under the plan to make sure your rollover worked.
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

I just checked and I see my solo 401K still open and accessible with zero balance. Does this change anything? Can I ask fidelity to close my 401K account now and then file final 5500-EZ online with zero balance? I had opened this solo 401K so I can do backdoor Roth IRA in year 2015 and had rolled over my IRA money(160K) into it. But then circumstances changed and I retired at end of 2016 and only was able to do backdoor for two years. Since 2016 there was no contribution, no activity and I decided to rollover balance from 401K to my traditional IRA back to simplify everything last March. So basically 160K was rolled into 401K and then rolled back with just 10K contribution towards that solo 401K from 2015-2016 and then zero activity until I rolled over balance back to traditional IRA last March.
Last edited by aum on Tue Aug 23, 2022 3:50 pm, edited 4 times in total.
HomeStretch
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by HomeStretch »

Are you age 59-1/2+?
Topic Author
aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

No. 57 years old now
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cowdogman
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by cowdogman »

aum wrote: Tue Aug 23, 2022 3:36 pm I just checked and I see my solo 401K still open and accessible with zero balance. Does this change anything? Can I ask fidelity to close my 401K account and then file 5500-EZ online with zero balance?
As noted the above, the account is NOT the plan. When you set up the 401(k), the sponsoring employer adopted the plan and then the account for the participant was established under the plan. The plan and the account are not the same thing.

If Fidelity is like Vanguard, it will not "close" the account. Your account will remain with a zero balance. I believe Vanguard removes accounts that have a zero balance for 7 years.

In order to terminate (not "close") the plan, the sponsoring employer needs to sign a piece a paper that says something like "The 401(k) plan established by [sponsoring employer] on [date] is terminated effective on [date]." Once that piece of paper is signed and the effective date occurs, the plan is terminated and the obligation to file the 5500-EZ reflecting the termination of the plan is triggered.

I have assumed that your business is a sole proprietorship (not an LLC or S Corp or any other separate legal entity) and that you are the only participant in the plan. If not, let me know and let me know the current status of any relevant entity--that is, is it still in existence.

None of the above deals with any issue other than the plan termination and the trigger for filing the 5500-EZ. For example, I am not addressing whether the rollover to the IRA was permissible under the plan.
aqan
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aqan »

HomeStretch wrote: Tue Aug 23, 2022 12:19 pm The 7/31/22 filing deadline doesn’t apply to your 3/10/21 plan termination. 7/31/22 was the deadline for filing an annual Form 5500-EZ for Solo 401k plans with assets of $250k+ as of 12/31/21.

If your plan termination date was 3/10/21, your final Form 5500-EZ filing deadline was 10/31/21. The filing deadline is the end of the 7th month following the plan termination date (which is the date the plan assets were $0 after transferring out the plan assets).

The IRS link in my prior post states to mail your package (transmittal form, final Form 5500-EZ and $500 check.
From what I remember, the fidelity rep told me that the plan termination date mentioned on the termination notice can be different from the date you empty out the account. The reason being, you give a few weeks to your employees before the plan is terminated. So OP may have sent himself a plan termination notice which will determine the termination date. Is that correct? It’s been a while since I closed my solo account so it’s a bit hazy.
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cowdogman
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by cowdogman »

aqan wrote: Tue Aug 23, 2022 3:56 pm
HomeStretch wrote: Tue Aug 23, 2022 12:19 pm The 7/31/22 filing deadline doesn’t apply to your 3/10/21 plan termination. 7/31/22 was the deadline for filing an annual Form 5500-EZ for Solo 401k plans with assets of $250k+ as of 12/31/21.

If your plan termination date was 3/10/21, your final Form 5500-EZ filing deadline was 10/31/21. The filing deadline is the end of the 7th month following the plan termination date (which is the date the plan assets were $0 after transferring out the plan assets).

The IRS link in my prior post states to mail your package (transmittal form, final Form 5500-EZ and $500 check.
From what I remember, the fidelity rep told me that the plan termination date mentioned on the termination notice can be different from the date you empty out the account. The reason being, you give a few weeks to your employees before the plan is terminated. So OP may have sent himself a plan termination notice which will determine the termination date. Is that correct? It’s been a while since I closed my solo account so it’s a bit hazy.
For a sole proprietor (or a continuously maintained entity), the solo 401(K) can be inactive indefinitely--al long as the the administrator continues to comply with the plan.
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

cowdogman wrote: Tue Aug 23, 2022 3:54 pm
aum wrote: Tue Aug 23, 2022 3:36 pm I just checked and I see my solo 401K still open and accessible with zero balance. Does this change anything? Can I ask fidelity to close my 401K account and then file 5500-EZ online with zero balance?
As noted the above, the account is NOT the plan. When you set up the 401(k), the sponsoring employer adopted the plan and then the account for the participant was established under the plan. The plan and the account are not the same thing.

If Fidelity is like Vanguard, it will not "close" the account. Your account will remain with a zero balance. I believe Vanguard removes accounts that have a zero balance for 7 years.

In order to terminate (not "close") the plan, the sponsoring employer needs to sign a piece a paper that says something like "The 401(k) plan established by [sponsoring employer] on [date] is terminated effective on [date]." Once that piece of paper is signed and the effective date occurs, the plan is terminated and the obligation to file the 5500-EZ reflecting the termination of the plan is triggered.

I have assumed that your business is a sole proprietorship (not an LLC or S Corp or any other separate legal entity) and that you are the only participant in the plan. If not, let me know and let me know the current status of any relevant entity--that is, is it still in existence.

None of the above deals with any issue other than the plan termination and the trigger for filing the 5500-EZ. For example, I am not addressing whether the rollover to the IRA was permissible under the plan.
Yes. It was solely my wife's plan and she was the only participant in the plan. She was the plan administrator and had about 10K put into 401K plan for the year 2015-2016. Rollover to traditional IRA was performed under the guidance of fidelity rep so I think it was permissible and Rep had never mentioned anything about filing 5500-EZ.

So should I consult Fidelity and ask them to terminate this 401K plan now with zero balance since 3/2021 and then file 5500-EZ online?
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cowdogman
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by cowdogman »

aum wrote: Tue Aug 23, 2022 4:10 pm
cowdogman wrote: Tue Aug 23, 2022 3:54 pm
aum wrote: Tue Aug 23, 2022 3:36 pm I just checked and I see my solo 401K still open and accessible with zero balance. Does this change anything? Can I ask fidelity to close my 401K account and then file 5500-EZ online with zero balance?
As noted the above, the account is NOT the plan. When you set up the 401(k), the sponsoring employer adopted the plan and then the account for the participant was established under the plan. The plan and the account are not the same thing.

If Fidelity is like Vanguard, it will not "close" the account. Your account will remain with a zero balance. I believe Vanguard removes accounts that have a zero balance for 7 years.

In order to terminate (not "close") the plan, the sponsoring employer needs to sign a piece a paper that says something like "The 401(k) plan established by [sponsoring employer] on [date] is terminated effective on [date]." Once that piece of paper is signed and the effective date occurs, the plan is terminated and the obligation to file the 5500-EZ reflecting the termination of the plan is triggered.

I have assumed that your business is a sole proprietorship (not an LLC or S Corp or any other separate legal entity) and that you are the only participant in the plan. If not, let me know and let me know the current status of any relevant entity--that is, is it still in existence.

None of the above deals with any issue other than the plan termination and the trigger for filing the 5500-EZ. For example, I am not addressing whether the rollover to the IRA was permissible under the plan.
Yes. It was solely my wife's plan and she was the only participant in the plan. She was the plan administrator and had about 10K put into 401K plan for the year 2015-2016. Rollover was to traditional IRA was performed under the guidance of fidelity rep and she had never mentioned anything about filing 5500-EZ.

So should I consult Fidelity and ask them to terminate this 401K plan now with zero balance since 3/2021 and then file 5500-EZ online?
You need to determine whether the rollover was an allowed in service rollover, which will be addressed in the plan. So you'll need to find a copy of the adopted plan.

If the rollover was NOT allowed, then you have two choices:

1. Treat the plan as terminated at the time of the rollover (because rollovers are permissible at plan termination), but deal with the consequences of filing a late 5500-Z.

2. Terminate the plan now and file the 5500-EZ, but deal with the consequences of an improper rollover in 2021.

Hopefully the rollover was allowed under the plan.
HomeStretch
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by HomeStretch »

cowdogman wrote: Tue Aug 23, 2022 4:17 pm You need to determine whether the rollover was an allowed in service rollover, which will be addressed in the plan. So you'll need to find a copy of the adopted plan.

If the rollover was NOT allowed, then you have two choices:

1. Treat the plan as terminated at the time of the rollover (because rollovers are permissible at plan termination), but deal with the consequences of filing a late 5500-Z.

2. Terminate the plan now and file the 5500-EZ, but deal with the consequences of an improper rollover in 2021.

Hopefully the rollover was allowed under the plan.
This sums it up well.

OP - I thought you were the plan sponsor but as you are not your age doesn’t matter (unless you also participated in the plan and also had plan assets?) . Was your wife age 59-1/2+ on the date she fully distributed the plan assets in her participant account?

If she was <age 59-1/2, consider paying the $500 penalty with the late Form 5500-EZ filing. It will likely cost more to consult with a benefits expert to see what the repercussions are of the improper distribution. I think it becomes an issue that affects the qualified plan status. Which has its own set of penalties/relief program for non-compliance.
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

cowdogman wrote: Tue Aug 23, 2022 4:17 pm You need to determine whether the rollover was an allowed in service rollover, which will be addressed in the plan. So you'll need to find a copy of the adopted plan.

If the rollover was NOT allowed, then you have two choices:

1. Treat the plan as terminated at the time of the rollover (because rollovers are permissible at plan termination), but deal with the consequences of filing a late 5500-Z.

2. Terminate the plan now and file the 5500-EZ, but deal with the consequences of an improper rollover in 2021.

Hopefully the rollover was allowed under the plan.
You nailed it cowdogman. Thank you so much! We spent hours searching late last night for papers submitted to rollover balance from solo 401K and found it - option for 'termitaion' was checked so rollover was qualified. I have already started filling out final 5500-EZ and form 14704.

I was caught off guard with this as its so insane that I never had to fill out 5500-EZ while plan was active for past six years but then on terminating the plan I had to! Its like paying no maintenance fee for your savings account but then when you close the account they slap you with un-real fine - sometimes even way more than your entire savings. But who am I to talk logic with IRS!
Last edited by aum on Wed Aug 24, 2022 1:17 pm, edited 7 times in total.
Topic Author
aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

HomeStretch wrote: Tue Aug 23, 2022 4:39 pm
This sums it up well.

OP - I thought you were the plan sponsor but as you are not your age doesn’t matter (unless you also participated in the plan and also had plan assets?) . Was your wife age 59-1/2+ on the date she fully distributed the plan assets in her participant account?

If she was <age 59-1/2, consider paying the $500 penalty with the late Form 5500-EZ filing. It will likely cost more to consult with a benefits expert to see what the repercussions are of the improper distribution. I think it becomes an issue that affects the qualified plan status. Which has its own set of penalties/relief program for non-compliance.
Thanks HomeStrech! I was not the plan sponsor and wife was 50 at the time of terminating her solo 401K. I will proceed with late first-final 5500-EZ with $500 fine. Do I need to explain them about what happened and how I missed it or just fill those two forms and a fine and keep it simple? Also would they get back to me with acknowledgement/resolutions once I mail everything? I will mail with certified return receipt just incase...
EnjoyIt
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by EnjoyIt »

aum wrote: Wed Aug 24, 2022 12:34 pm
cowdogman wrote: Tue Aug 23, 2022 4:17 pm You need to determine whether the rollover was an allowed in service rollover, which will be addressed in the plan. So you'll need to find a copy of the adopted plan.

If the rollover was NOT allowed, then you have two choices:

1. Treat the plan as terminated at the time of the rollover (because rollovers are permissible at plan termination), but deal with the consequences of filing a late 5500-Z.

2. Terminate the plan now and file the 5500-EZ, but deal with the consequences of an improper rollover in 2021.

Hopefully the rollover was allowed under the plan.
You nailed it cowdogman. Thank you so much! We spent hours searching late last night for papers submitted to rollover balance from solo 401K and found it - option for 'termitaion' was checked so rollover was qualified. I have already started filling out final 5500-EZ and form 14704.

I was caught off guard with this as its so insane that I never had to fill out 5500-EZ while plan was active for past six years but then on terminating the plan I had to! Its like paying no maintenance fee for your savings account but then when you close the account they slap you with un-real fine - sometimes even way more than your entire savings. But who am I to talk logic with IRS!
Offering 1 data point. A few years back I forgot to file my 5500EZ. As you are aware, fines can get really steep. I can't remember the steps but I asked for forgiveness of the fee and it was granted. Contact the IRS and see if they are willing to help you out with forgiveness.

Actually, I really believe I sent it in since I had it filled out the paper form and saved it on my computer. Maybe I never mailed it. Maybe it got lost in the the mail. Either way, they accepted my plea.

Good luck.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
HomeStretch
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by HomeStretch »

aum wrote: Wed Aug 24, 2022 12:41 pm … Do I need to explain them about what happened and how I missed it or just fill those two forms and a fine and keep it simple? Also would they get back to me with acknowledgement/resolutions once I mail everything? I will mail with certified return receipt just incase...
Sorry, no experience with the program. Personally I would follow the instructions and only provide an explanation if required.

As mentioned by another poster in this thread (or perhaps the thread your post was moved from), if you try the alternative of asking for penalty relief for reasonable cause and the IRS denies it, you are no longer eligible for the $500 late filing penalty relief program as explained here:
https://www.irs.gov/retirement-plans/pe ... ate-filers
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

HomeStretch wrote: Wed Aug 24, 2022 2:57 pm As mentioned by another poster in this thread (or perhaps the thread your post was moved from), if you try the alternative of asking for penalty relief for reasonable cause and the IRS denies it, you are no longer eligible for the $500 late filing penalty relief program as explained here:
https://www.irs.gov/retirement-plans/pe ... ate-filers
Yep. I agree. Thats a huge risk to take so I will just pay the fine and close the case.
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

Few Questions form 5500-EZ 2021

Since this solo 401K was closed on 3/11/2021 and I never had to file before:

Part I - Should I enter fiscal plan year beginning 01/01/2021 and end date as 03/11/2021 or treat it as a calendar plan year and leave beginning and end entry blank? When I opened this solo 401k in 2015 I had picked 'calendar plan year'

Part 1 Box A - I checked box 1(first return) box 3(final return) and 4 (short year - is this correct or I should leave this box blank?)

Part 1 Box D - Checked

Part III - What should I put in for Total plan assets for question 6a and c for End of year? Should I put 0(zero) or the value of the asset which was rolled over to traditional IRA($187,606) on 3/11/2021 and emptied balance to 0(zero)? I had $187,948 at the beginning of year on 1/1/2021 and never had any plan liabilities.
theplayer11
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by theplayer11 »

aum wrote: Thu Aug 25, 2022 1:44 pm Few Questions form 5500-EZ 2021

Since this solo 401K was closed on 3/11/2021 and I never had to file before:

Part I - Should I enter fiscal plan year beginning 01/01/2021 and end date as 03/11/2021 or treat it as a calendar plan year and leave beginning and end entry blank? When I opened this solo 401k in 2015 I had picked 'calendar plan year'



Part 1 Box A - I checked box 1(first return) box 3(final return) and 4 (short year - is this correct or I should leave this box blank?)

Part 1 Box D - Checked

Part III - What should I put in for Total plan assets for question 6a and c for End of year? Should I put 0(zero) or the value of the asset which was rolled over to traditional IRA($187,606) on 3/11/2021 and emptied balance to 0(zero)? I had $187,948 at the beginning of year on 1/1/2021 and never had any plan liabilities.
Here is what I did from advice here, hopefully it was correct:

yes, 01/01/2021 to end date
yes, checked all 3 boxes
I put Zero for balance end of year
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cowdogman
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by cowdogman »

aum wrote: Thu Aug 25, 2022 1:44 pm Few Questions form 5500-EZ 2021

Since this solo 401K was closed on 3/11/2021 and I never had to file before:

Part I - Should I enter fiscal plan year beginning 01/01/2021 and end date as 03/11/2021 or treat it as a calendar plan year and leave beginning and end entry blank? When I opened this solo 401k in 2015 I had picked 'calendar plan year'

Part 1 Box A - I checked box 1(first return) box 3(final return) and 4 (short year - is this correct or I should leave this box blank?)

Part 1 Box D - Checked

Part III - What should I put in for Total plan assets for question 6a and c for End of year? Should I put 0(zero) or the value of the asset which was rolled over to traditional IRA($187,606) on 3/11/2021 and emptied balance to 0(zero)? I had $187,948 at the beginning of year on 1/1/2021 and never had any plan liabilities.
The Part 1 ending date should be the date on which the balance was zero.

Boxes 1, 3 an 4 should be checked.

One of the common mistakes made on final 5500-EZs is not having zero as the final balance. It should be zero. That's how the IRS knows THE 5500-EZ is final.

FWIW here are the codes I used in Line 8: 2E 2J 2R 2T 3B 3D.
HomeStretch
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by HomeStretch »

Also enter “0” as the # of participants at the end of the short plan year.

Please post back updates on the resolution of your late filing and use of the penalty relief process. There have been several recent threads about late Form 5500-EZ filings so your thread may be helpful to someone else in the future.
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MP123
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by MP123 »

And don't forget to attach Form 14704 www.irs.gov/pub/irs-pdf/f14704.pdf along with your check.
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cowdogman
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by cowdogman »

The IRS used to have a web page listing the most common final 5500-EZ errors. It's gone now, but I found it at the WaybackMachine. The original address was: https://www.irs.gov/retirement-plans/pl ... nal-return. You can find it at the WaybackMachine (https://web.archive.org/).

Note the 90%.

Here's an excerpt:
Project results
Over 90% of the responses showed sponsors made one or more of the following errors on their Form 5500:

Filed a Form 5500 marked the final return/report but had assets at the end of the plan year
For the final return/report box to be marked, sponsors must have distributed all plan assets.

Filed more than one Form 5500 marked the final return/report
Only one Form 5500 should be marked as the final return/report and should be filed for a terminated plan after all plan assets are distributed.

Distributed all plan assets after the end of the plan year but before filing the Form 5500
For example, a sponsor marked its 2011 Form 5500 as the final return/report for the plan year ending December 31, 2011. However, the plan still had assets on December 31, 2011, which it distributed in 2012 before the filing deadline for the 2011 Form 5500 (July 31, 2012). Even though the plan distributed all plan assets before the due date of its 2011 Form 5500, the distribution was made in the 2012 plan year and not in the 2011 plan year. Therefore, the sponsor shouldn’t have marked its 2011 Form 5500 as the final return/report. Instead, the sponsor should have filed and marked its 2012 Form 5500 as the final return/report.

Filed a Form 5500 for a Simplified Employee Pension (SEP) plan
Plan sponsors shouldn’t file a Form 5500 for a SEP plan. Instead, the entity that maintains the SEP-IRA files a Form 5498, IRA Contribution Information.

Filed a Form 5500 for an IRA
Plan sponsors shouldn’t file a Form 5500 for their IRA. Instead, the entity that maintains the IRA files a Form 5498, IRA Contribution Information.

Didn’t check the “short plan year return/report (less than 12 months)” box
Plan sponsors should mark the short plan year box when filing a return for a period of less than 12 months and show the short plan year dates just above item A in Part I. For example, if the plan assets weren’t distributed until after the end of a plan year in which the plan terminated, then the plan may have a short plan year for the year they’re actually distributed. For a short plan year, the return is due by the last day of the 7th month following the end of the short plan year.
HomeStretch
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by HomeStretch »

cowdogman wrote: Thu Aug 25, 2022 2:07 pm The IRS used to have a web page listing the most common final 5500-EZ errors. …
Thanks, interesting summary and amazing that such a short list accounts for 90% of errors in Form 5500-EZ filings!
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cowdogman
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by cowdogman »

HomeStretch wrote: Thu Aug 25, 2022 2:11 pm
cowdogman wrote: Thu Aug 25, 2022 2:07 pm The IRS used to have a web page listing the most common final 5500-EZ errors. …
Thanks, interesting summary and amazing that such a short list accounts for 90% of errors in Form 5500-EZ filings!
I think the most interesting fact is that more than 90% of the final 5500-EZ had errors. But I agree it is a short list.
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

theplayer11 wrote: Thu Aug 25, 2022 1:52 pm
Here is what I did from advice here, hopefully it was correct:

yes, 01/01/2021 to end date
yes, checked all 3 boxes
I put Zero for balance end of year
Thanks theplayer11!
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

cowdogman wrote: Thu Aug 25, 2022 1:57 pm
The Part 1 ending date should be the date on which the balance was zero.

Boxes 1, 3 an 4 should be checked.

One of the common mistakes made on final 5500-EZs is not having zero as the final balance. It should be zero. That's how the IRS knows THE 5500-EZ is final.

FWIW here are the codes I used in Line 8: 2E 2J 2R 2T 3B 3D.
Thanks cowdogman!
Do I need to put all these codes in Line 8? From the instruction
2E - Profit Sharing - I had solo 401(k)...Is it also considered Profit Sharing? Do I need to insert this code?
2J - Section 401(k) features
2R - Participant-directed brokerage accounts
2T - Total or partial participant-directed account plan
3B - Plan covering self-employed individuals
3D- Pre-approved pension plan – A pre-approved pension plan under sections 401, 403(a), and 4975(e)(7) that is
subject to a favorable opinion letter from the IRS - Does this code apply in my case?
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

HomeStretch wrote: Thu Aug 25, 2022 1:57 pm Also enter “0” as the # of participants at the end of the short plan year.

Please post back updates on the resolution of your late filing and use of the penalty relief process. There have been several recent threads about late Form 5500-EZ filings so your thread may be helpful to someone else in the future.
Thanks! Yep. I sure will update once I mail the form and when I hear back from IRS.
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

MP123 wrote: Thu Aug 25, 2022 2:06 pm And don't forget to attach Form 14704 www.irs.gov/pub/irs-pdf/f14704.pdf along with your check.
Yep. I already have that filled and printed,
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

cowdogman wrote: Thu Aug 25, 2022 2:07 pm
Note the 90%.

Here's an excerpt:
Project results
Over 90% of the responses showed sponsors made one or more of the following errors on their Form 5500:

Filed a Form 5500 marked the final return/report but had assets at the end of the plan year
For the final return/report box to be marked, sponsors must have distributed all plan assets.

Filed more than one Form 5500 marked the final return/report
Only one Form 5500 should be marked as the final return/report and should be filed for a terminated plan after all plan assets are distributed.

Distributed all plan assets after the end of the plan year but before filing the Form 5500
For example, a sponsor marked its 2011 Form 5500 as the final return/report for the plan year ending December 31, 2011. However, the plan still had assets on December 31, 2011, which it distributed in 2012 before the filing deadline for the 2011 Form 5500 (July 31, 2012). Even though the plan distributed all plan assets before the due date of its 2011 Form 5500, the distribution was made in the 2012 plan year and not in the 2011 plan year. Therefore, the sponsor shouldn’t have marked its 2011 Form 5500 as the final return/report. Instead, the sponsor should have filed and marked its 2012 Form 5500 as the final return/report.

Filed a Form 5500 for a Simplified Employee Pension (SEP) plan
Plan sponsors shouldn’t file a Form 5500 for a SEP plan. Instead, the entity that maintains the SEP-IRA files a Form 5498, IRA Contribution Information.

Filed a Form 5500 for an IRA
Plan sponsors shouldn’t file a Form 5500 for their IRA. Instead, the entity that maintains the IRA files a Form 5498, IRA Contribution Information.

Didn’t check the “short plan year return/report (less than 12 months)” box
Plan sponsors should mark the short plan year box when filing a return for a period of less than 12 months and show the short plan year dates just above item A in Part I. For example, if the plan assets weren’t distributed until after the end of a plan year in which the plan terminated, then the plan may have a short plan year for the year they’re actually distributed. For a short plan year, the return is due by the last day of the 7th month following the end of the short plan year.
Haha... Why does the form have -EZ in the name?
Soon2BXProgrammer
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by Soon2BXProgrammer »

aum wrote: Thu Aug 25, 2022 9:26 pm
cowdogman wrote: Thu Aug 25, 2022 2:07 pm
Note the 90%.

Here's an excerpt:
Project results
Over 90% of the responses showed sponsors made one or more of the following errors on their Form 5500:

Filed a Form 5500 marked the final return/report but had assets at the end of the plan year
For the final return/report box to be marked, sponsors must have distributed all plan assets.

Filed more than one Form 5500 marked the final return/report
Only one Form 5500 should be marked as the final return/report and should be filed for a terminated plan after all plan assets are distributed.

Distributed all plan assets after the end of the plan year but before filing the Form 5500
For example, a sponsor marked its 2011 Form 5500 as the final return/report for the plan year ending December 31, 2011. However, the plan still had assets on December 31, 2011, which it distributed in 2012 before the filing deadline for the 2011 Form 5500 (July 31, 2012). Even though the plan distributed all plan assets before the due date of its 2011 Form 5500, the distribution was made in the 2012 plan year and not in the 2011 plan year. Therefore, the sponsor shouldn’t have marked its 2011 Form 5500 as the final return/report. Instead, the sponsor should have filed and marked its 2012 Form 5500 as the final return/report.

Filed a Form 5500 for a Simplified Employee Pension (SEP) plan
Plan sponsors shouldn’t file a Form 5500 for a SEP plan. Instead, the entity that maintains the SEP-IRA files a Form 5498, IRA Contribution Information.

Filed a Form 5500 for an IRA
Plan sponsors shouldn’t file a Form 5500 for their IRA. Instead, the entity that maintains the IRA files a Form 5498, IRA Contribution Information.

Didn’t check the “short plan year return/report (less than 12 months)” box
Plan sponsors should mark the short plan year box when filing a return for a period of less than 12 months and show the short plan year dates just above item A in Part I. For example, if the plan assets weren’t distributed until after the end of a plan year in which the plan terminated, then the plan may have a short plan year for the year they’re actually distributed. For a short plan year, the return is due by the last day of the 7th month following the end of the short plan year.
Haha... Why does the form have -EZ in the name?
It is easy compared to the normal 5500
Earned 40 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

One more question...

Does 7 a,b,c only apply to short plan year of 2021 or for the history of the plan? Should I just put 0(zero) there?

In 2015 - I had 139K rolledover from traditional IRA to this solo 401k and 10K of employee contribution
In 2016 - I had 18K of employee contribution
Then from 2017 until I terminated the account there were no activities nor any contributions.

Part III - Contributions received or receivable from:

7a Employers.............................
7b Participants............................
7c Others (including rollovers).......................

EDIT: I called Fidelity and they told me to put 0(zero) for 7a,b,c
And the codes for line 8: 2E 2J 2R 3D
And for line 5: 1 0 0 0 0


Thank you everyone for all your help! I'll be mailing out this form by fedex today.

More help here: https://www.fidelity.com/retirement-ira ... /form-5500 then click on third tab for "Form 5500-EZ"
Last edited by aum on Mon Aug 29, 2022 1:08 pm, edited 1 time in total.
jgalt133
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by jgalt133 »

cowdogman wrote: Thu Aug 25, 2022 2:20 pm I think the most interesting fact is that more than 90% of the final 5500-EZ had errors. But I agree it is a short list.
Minor nitpick. They said more than 90% of the responses. They don't detail their methodology very carefully, but I assume they identified the forms that had errors, reached out to a sample of the people who filed these erroneous forms to clarify what the nature of the error was (i.e., checked wrong box or entered wrong number), and then noted that over 90% of the people in the study sample (consisting entirely of forms that had some error detected by an algorithm) who responded made the mistakes in the short list.
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

My $500 check was cashed by IRS on 9/1/2022 but I have not received any updates or follow up from them. Is this normal? Is there a way to get any confirmation from them that I am good?
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

I finally got an acknowledgement that they have received my 5500 but still need 60 more days to work on it....Almost after 4 months! But $500 check was cashed within few days on 9/1/2022. Uncle SAM just loves your money..:)
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cowdogman
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by cowdogman »

aum wrote: Tue Dec 13, 2022 10:46 am I finally got an acknowledgement that they have received my 5500 but still need 60 more days to work on it....Almost after 4 months! But $500 check was cashed within few days on 9/1/2022. Uncle SAM just loves your money..:)
Thanks for the update. Don't be surprised if you get a series of "60 days more" letters.
toddthebod
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by toddthebod »

aum wrote: Tue Dec 13, 2022 10:46 am I finally got an acknowledgement that they have received my 5500 but still need 60 more days to work on it....Almost after 4 months! But $500 check was cashed within few days on 9/1/2022. Uncle SAM just loves your money..:)
We mailed our delinquent forms in on May 24, 2022, they cashed the check immediately, sent us the letter within a few weeks saying they needed time, and we finally got our confirmation on October 11 (technically, dated October 11, so received in a mail a few days later.)
Backtests without cash flows are meaningless. Returns without dividends are lies.
jgalt133
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by jgalt133 »

I've been seriously considering closing my solo 401(k) due to the excessive penalties for a mistake in filing or a missed filing and just using a SEP-IRA instead; however, I'm waiting until the IRS isn't so backlogged. It's good to hear that people are starting to get resolutions to their late filing penalty relief requests.
HomeStretch
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by HomeStretch »

jgalt133 wrote: Wed Jan 04, 2023 12:02 pm I've been seriously considering closing my solo 401(k) due to the excessive penalties for a mistake in filing or a missed filing and just using a SEP-IRA instead; however, I'm waiting until the IRS isn't so backlogged. …
The IRS backlog should not impact the timing of terminating your Solo 401k Plan. You just need to transfer out the Plan assets and file a final Form 5500-EZ within 7 months. The filing can be done easily through the DOL EFAST2 system. File a simple plan termination notice and Form 5500-EZ (with the ESFAST2 filing confirmation notice) in your personal 401k files.
chambers136
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by chambers136 »

HomeStretch wrote: Wed Jan 04, 2023 1:30 pm You just need to transfer out the Plan assets and file a final Form 5500-EZ within 7 months. The filing can be done easily through the DOL EFAST2 system.
My wife will be terminating her solo 401k this month. I know she needs the 5500EZ for 2022 showing the balance as of 12/31/2022. From what you say above, it sounds like she need to file the final 5500EZ by August 2023? So there will be (2) 2022 5500EZs?
mcraepat9
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by mcraepat9 »

Only commenting here to say that for my own solo 401k, we just created several Outlook/Google calendar reminders 4 months, 3 months, 2 months, 1 month and on the due date for all 5500 filings. The form is very easy to complete so I would suggest not giving up the benefit of a solo 401k purely due to easily avoidable penalties.
Amateur investors are not cool-headed logicians.
HomeStretch
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by HomeStretch »

chambers136 wrote: Wed Jan 04, 2023 2:03 pm
HomeStretch wrote: Wed Jan 04, 2023 1:30 pm You just need to transfer out the Plan assets and file a final Form 5500-EZ within 7 months. The filing can be done easily through the DOL EFAST2 system.
My wife will be terminating her solo 401k this month. I know she needs the 5500EZ for 2022 showing the balance as of 12/31/2022. From what you say above, it sounds like she need to file the final 5500EZ by August 2023? So there will be (2) 2022 5500EZs?
An annual Form 5500-EZ is required if Plan assets are >$250k at 12/31/22. The filing deadline is 7/31/23.

A final Form 5500-EZ is required in connection with a Plan termination. The filing deadline is the end of the 7th month following the Plan termination date. If your spouse terminates the Plan (and transfers out all assets) in January 2023, the filing deadline is 8/31/2023.

There are one or two helpful 2022 threads on how to correctly complete a final Form 5500-EZ. Also consider filing it via EFAST2 as the system does some edit checks and gives written confirmation of the filing date.
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aum
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by aum »

aum wrote: Tue Dec 13, 2022 10:46 am I finally got an acknowledgement that they have received my 5500 but still need 60 more days to work on it....Almost after 4 months! But $500 check was cashed within few days on 9/1/2022. Uncle SAM just loves your money..:)
And I finally got the resolution in the mail today. Strange wording that no other action will be taken at this time…. Actual response from IRS pasted below:

“ We received your payment of $500.00 with the Form 14704, Transmittal Schedule Form 5500 EZ Delinquent Filer Penalty Relief Program (RevenueProcedure 2015-32). Our records indicate the fee was paid for your Form 5500 EZ return for the account listed above. No other action will be taken on this account at this time.”
truenorth418
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by truenorth418 »

aum wrote: Tue Jan 24, 2023 7:43 pm

“ We received your payment of $500.00 with the Form 14704, Transmittal Schedule Form 5500 EZ Delinquent Filer Penalty Relief Program (RevenueProcedure 2015-32). Our records indicate the fee was paid for your Form 5500 EZ return for the account listed above. No other action will be taken on this account at this time.”
They sure left their options open with that response didn’t they?

I opened a solo 401K some years ago for a consulting gig I had. I later closed the account and sent in the final form to close it. But I’m not sure opening the solo 401K was worth all of the anxiety and potential penalties that go with the IRS requirements. Even though I’m confident that I filed all of the right forms, if I had to do it over again I wouldn’t have opened the account in the first place, what with that sword of Damacles hanging over my head.
jgalt133
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Re: Closed my solo 401(k) - Did not file 5500-EZ

Post by jgalt133 »

truenorth418 wrote: Tue Jan 24, 2023 8:36 pm I opened a solo 401K some years ago for a consulting gig I had. I later closed the account and sent in the final form to close it. But I’m not sure opening the solo 401K was worth all of the anxiety and potential penalties that go with the IRS requirements. Even though I’m confident that I filed all of the right forms, if I had to do it over again I wouldn’t have opened the account in the first place, what with that sword of Damacles hanging over my head.
I'm in the exact same situation (except that I still am doing consulting on the side). Since I have access to a 401(k) plan at my main employer that I can max out my employee contributions, opening an individual 401k for my consulting did not give me any additional benefit over the simpler SEP IRA. I wish I had just done a SEP IRA.
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