Your Solo-401(k) May Be Required to File Form 5500-EZ by July 31st

Solo-401(k)s or Uni-Ks are a great retirement plan for self-employed individuals.  The amount of deductible contributions you can make depends upon your net business income and your age.  The maximum for 2016 contributions is $59,000.  This amount consists of the following layers:

·        Standard 401(k) maximum contribution of $18,000.

·        Catch-up contribution of $6,000 if you are at least age 50 by the end of the year.

·        Profit-sharing contribution of $35,000 (defined contribution maximum of $53,000 as indexed for 2016 less the standard 401(k) amount of $18,000 that counts against the limit).  Note that the profit-sharing contribution is limited to either 20% or 25% of business net income depending upon the type of business entity.

Qualified retirement plans such as 401(k)s must file an annual Form 5500 with the IRS by the last day of the seventh month following the end of the plan year.  An extension is available.  Form 5500 is very complicated.  An easier Form 5500-EZ is available for a one-participant plan, and is only required if total plan assets at the end of the plan year exceed $250,000.  If plan assets do not exceed $250,000, then there is no required tax return filing.  A one-participant plan means:  1) a plan that covers and provides benefits to 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) a plan that covers and provides benefits to one or more partners (or partners and their spouses) in a business partnership.  If you have multiple plans they must be aggregated for the $250,000 test.

A late filing penalty of $25 a day (up to $15,000) applies if Form 5500-EZ is not filed on time.  Filing Form 5500-EZ can sometimes be overlooked since the account is often considered just a personal investment account.