Solo 401k Reporting Requirements and Compliance

Solo 401k plans are a great way for self-employed individuals and small business owners to save for retirement, but they come with their own set of reporting requirements.

The IRS requires solo 401k plans to file a Form 5500 if the plan has assets worth $250,000 or more at the end of the year.

You'll need to file this form by July 31st of each year, or you might face penalties and fines.

The Form 5500 requires detailed information about the plan's assets, income, and expenses, as well as the plan's fiduciaries and administrators.

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If your Solo 401(k) plan has $250,000 or more in assets, you'll need to file a short information return with the IRS, known as Form 5500-EZ.

Form 5500-EZ is a relatively simple form that takes about 20 minutes to complete, but it's essential to get it right to avoid penalties.

The IRS penalty for late filing of a 5500-series return is $25 per day, up to a maximum of $15,000.

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The DOL penalty for late filing can run up to $1,100 per day (as indexed for inflation), with no maximum.

You don't need to file Form 5500-EZ if your Solo 401(k) plan has less than $250,000 in assets.

If you do need to file Form 5500-EZ, you'll need to do so by July 31st of the following calendar year.

Here's a key deadline to keep in mind:

Make sure to track your contributions and rollovers properly, as incorrect reporting can lead to penalties and even loss of hard-earned retirement dollars.

You can file Form 5500-EZ with the help of guides and training videos, which can make the process much easier.

If your Solo 401(k) plan has assets under $250,000, you're off the hook for annual filing with the IRS.

There's no need to file a 5500-EZ form unless your plan exceeds the $250,000 asset threshold.

Solo 401k plans are relatively easy to operate, but there are some tax rules to keep in mind.

If your Solo 401(k) plan has assets under $250,000, you don't have to file any paperwork with the IRS.

You'll only need to file a short information return (Form 5500-EZ) if your plan exceeds $250,000 in assets, and in that case, the filing requirement is relatively straightforward.

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Solo 401(k) plans are exempt from many complicated rules designed to ensure fairness because there are no non-owners to protect.

Unlike other 401(k) plans, solo plans don't have to follow rules that apply to plans with multiple owners.

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Reporting contributions and rollovers is a crucial aspect of solo 401(k) compliance. You should indicate on the rollover or transfer form that the funds are being rolled over to another retirement account.

If you've rolled over funds from an IRA or other 401(k) to your solo 401(k), the company rolling over the funds will issue a 1099-R with a code G in box 7, indicating the funds were transferred to another retirement account and are not subject to tax.

New contributions to the solo 401(k) should be properly tracked on your personal and business tax returns.

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You should have indicated that a rollover or transfer was to another retirement account if you've rolled over funds from an IRA or other 401(k) to your Solo 401(k). The company rolling over the funds will issue a 1099-R to you with a code G in box 7, indicating that the funds were transferred to another retirement account.

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Properly tracking new contributions on your personal and business tax returns is also crucial. If you're making new contributions to the Solo 401(k), ensure those contributions are properly tracked.

As an S-Corp, your employee contributions should show up on your W-2, and your employer contributions will show up on line 17 of your 1120S S-Corp tax return. This includes traditional and Roth contributions.

If you're a Sole Prop, your contributions will typically show up on your personal 1040 on line 28.

Failing to properly file Form 5500 can result in a penalty of $25 a day up to a maximum of $15,000 per return not properly filed.

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To separate funds by source and participant, you must maintain separate bank accounts for the different participants' funds, such as spouses or partners in a Solo K.

For example, in a Solo K, you'll need to keep separate accounts for traditional funds and Roth funds. This ensures that returns to the Solo 401(k) are properly credited to the right investing account.

You must properly track and document investments from these different fund sources, so make sure to keep accurate records.

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