The Rules on Filing IRS Form 5500 for Your Solo 401(k) Plan (2024)

By Stephen Fishman, J.D. USC Gould School of Law

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A solo 401(k) (also called a one-person or individual 401(k)) is a 401(k) retirement plan designed specifically for self-employed people with one-owner businesses. It covers only you (or you and your spouse, if any). You can set up a solo 401(k) whether your business is incorporated or a sole proprietorship. Partners in a partnership can also establish these plans for themselves. Solo 401(k)s are a great retirement option for self-employed people because the money you contribute each year is tax deductible, and you can make substantial annual deductible contributions: as much as 20% of your net profit from self-employment plus an annual deferral contribution of up to $18,000 (2017 and 2015), up to an annual maximum of $53,000 (2016 and 2015). Plus you can add an additional $6,000 annual catch-up contribution if you're over 50 years of age.

You can set up a solo 401(k) plan at most banks, brokerage houses, mutual funds, and other financial institutions and invest the money in a variety of ways. You must adopt a written plan and set up a trust or custodial account with your plan provider to invest your funds. Financial institutions that offer solo 401(k) plans have preapproved ready-made plans that you can use.

One of the great things about solo 401(k) plans is that they are very easy to administer. If, at the end of the year, the total assets in your solo 401(k) are worth less than $250,000, you need make no annual tax filings of any kind with the IRS. However, an annual tax filing is required if the total balance of your plan exceeds $250,000 at the end of the year. The filing deadline is July 31.

If your solo 401(k) is worth more than $250,000, you can have your plan administrator or CPA make the required filing. However, they will ordinarily charge you for this service—often as much as $200. You can easily do this very simple tax filing yourself and save the money.

There are two ways to file:

• by postal mail using IRS Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan to the IRS, or
• electronically, by filing IRS Form 5500-SF.

Mailing Form 5500-EZ to the IRS

You can easily complete a paper Form 5500-EZ and postal mail it to the IRS. The IRS has an online fillable form on its website you can complete and print out. Alternatively, you can also complete the paper form by hand. You need only provide some very basic information about your plan, such as identifying information, total plan assets and liabilities, and whether the plan has many any loans to you.

Electronically Filing Form 5500-SF

Instead of filing by mail, you can file electronically. The IRS says electronic filing makes the process easier for the filer and increases data accuracy. However, it is more complicated than filing on paper. You can't electronically file Form 5500-EZ; instead, you file Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan. To file, you must use the Department of Labor's EFAST2 web-based filing system (or an EFAST2-approved vendor). The IRS has a free online software application called IFILE that you can use. You'll need to register and set up an account. For more information, see the EFAST2 website. For telephone assistance, call the EFAST2 Help Line at 1-866-463-3278.

Visit the IRS's Form 5500 Corner web page, and see the instructions for Form 5500-SF and the instructions for Form 5500-EZ for additional information.