If you have a solo 401(k), one of the benefits that may have attracted you to this type of retirement account was the tax-free growth potential. A solo 401(k) allows account owners to invest in much more than your traditional account. In fact, account owners can invest in real estate, precious metals, renewable energy and much more in addition to the stocks, bonds and mutual funds a traditional account permits. Because of these investment opportunities, account owners are more likely to see increased diversity and growth potential. When coupled with tax-free growth, the returns can quickly escalate. While your solo 401(k) does not have a standard, yearly tax filing requirement – there are two exceptions. If your solo 401(k) has over $250,000 in assets by the December 31 closing of the previous year, you will need to file Form 5500 EZ in accordance with Internal Revenue Service (IRS) regulations. Additionally, if you terminate your solo 401(k), you will be required to file Form 5500 EZ as well.
What is Form 5500 EZ and Who Can See It?
Form 5500 EZ is an IRS document required to be submitted for one-participant retirement plans, like your solo 401(k) plan, by July 31 every year if the value of the account is over $250,000. For those who value their privacy, you will be pleased to hear that, as of 2012, Form 5500 EZ is no longer a public document when submitted on behalf of a solo 401(k) account.
What If I Fail to File Form 5500 EZ?
If you own an account that meets the requirement threshold for filing Form 5500 EZ, failure to do so will result in penalties once the IRS finds out. At $25 a day, the IRS can fine you up to $15,000 a year for failure to file your Form 5500 EZ.
Avoid the Penalties and File
If you need to file Form 5500 EZ for your solo 401(k), it must be submitted to the IRS directly. Mail your form to the Department of Treasury, Internal Revenue Service, Ogden, UT 84201-0020. Again, to avoid penalties, you must file Form 5500 EZ for any solo 401(k) valued at over $250,000 by July 31 every year.
IRA Business Trust Can Help
If you open a solo 401(k) account with Royal Legal Solutions, we make filing the appropriate documents easy. As part of your plan, we take it upon ourselves to prepare all necessary tax documents on your behalf. If you have questions or would like to learn more about tax regulations and retirement accounts, contact us today.