The New EFAST Form 5500 Tax Filing for Solo 401k Plans

With the new 2009 EFAST filing requirement going into effect for traditional 401k plans, how will the new rules affect Solo 401k Plans?

Currently, a Solo 401k plan has been eligible to file the Form 5500-EZ rather than the Form 5500 if the Solo 401k plan met all of the following requirements:

1.    covered only an individual or an individual and spouse who solely own a trade or business (whether incorporated or unincorporated);  

2.    covered only the partners or the partners and spouses.

3.    met the 410(b) coverage requirements without being combined with another plan of the employer;

4.    did not cover an employer that was part of a controlled group; or  was part of a company under common control or part of an affiliated service group and

5.    did not cover an employer for which leased employees performed services.

Example with 2008 RULES.

Bob, an electrician, has a sole proprietorship and owns 100% of an S-Corp remodeling business.

The sole proprietorship has no employees other than Bobs spouse and has a Solo 401-k plan. The incorporated business also had no employees.

Because of Bob's ownership of the sole proprietorship and S-Corp make up a controlled group  Bob was required to file Form 5500 instead of Form 5500-EZ for 2008.Even If the plan assets do not exceed $250,000, Bob is still required to file Form 5500.

Under the new EFAST instructions that go into effect for 2009 plan years the DOL and the IRS changed the definition of one-participant plan for purposes of the 2009 5500 filing.

For purposes of 2009 5500 filing, a one-participant plan is:

  1.      A plan that covers only an individual or an individual and spouse who own 100 % of a trade or business (Whether a sole proprietorship, LLC, S-Corp or C-Corp); or

      2.  A plan that covers only the partners or the partners and spouses.

Example with 2009 RULES.

Bob, still the electrician, has the same sole proprietorship as before and still owns 100% of an S-Corp remodeling business.

With the same circumstances as in the OLD RULES example but the plan year is 2009 instead of 2008. Bob now files only Form 5500-EZ.

Under the new EFAST2 rules for 2009, Solo 401k plans have both filing options and limitations.

Solo 401k plans have the following Options:

1.    file Form 5500-EZ on paper directly with the IRS.  or

2.    file Form 5500-SF electronically with the DOL in lieu of the paper Form 5500-EZ. ( cannot have Employer Securities in plan and can not have more than 100 members).

Solo 401k plans have the following Limitations:

1.    Can not file the Form 5500-EZ electronically

2.    Can not  file the Form 5500 instead of 5500-EZ or 5500-SF

Frequently  Asked Questions about the new 2009 5500filing rules

1. Will my information on the Form 5500-EZ or Form-SF be open to the public?

NO for the-EZ and YES for the -SF

The IRS will not publish the 5500-EZ. However, the Dept of Labor will publish the 5500-SF.

A Solo 401k plan employer, concerned with the awareness of the retirement account ,should take the public disclosure into their decision making on filing Form 5500-SF or Form 5500-EZ. Particularly if you have used your Social Security number instead of getting a separate EIN for your Company.

2. Does the plan still need to file Form 5500-EZ If the plan assets are $250,000 or less at the end of the plan year.

No. In fact, the plan does not need to file Form 5500-EZ even if the plan assets exceeded $250,000 in a previous plan year, so long as the assets are less than $250,000 at the end of the current plan year.

3. If a Solo 401k plan has been filing Form 5500 because it was part of controlled group but now is able to file Form 5500-EZ alone, can the plan change to filing the 5500-EZ for the plan year?

Yes. However the immediate cessation of filings could generate a Dept of Labor non filing letter, the Solo 401k plan should file Form 5500-EZ with the IRS and avoid the risk of the DOL sending out such a letter.   

4. Is a Solo 401k plan eligible to correct late filings under the Dept of Labor delinquent filing voluntary compliance (DFVC) program?

No. The DFVC program is not available to a Solo 401k plan even if it files Form 5500-SF.

A Solo 401k plan filing late should include an additional letter requesting an abatement of the associated IRS penalty as well.

In our continuing commitment to you, we are bringing your attention to the procedures you need to know to feel comfortable with the new Form 5500 transition. 

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