Understanding Form 5500-EZ: A Guide for Small Business Owners
If you’re a small business owner who has set up a retirement plan just for yourself, or for yourself and your spouse, you might have come across Form 5500-EZ. It can seem a bit daunting, but it’s really just a way for the IRS to keep tabs on retirement plans. Let’s break down what it is, who needs to file it, and why it’s important.
What exactly is Form 5500-EZ?
Form 5500-EZ is a specific tax form for a particular type of retirement plan. The full name, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan, pretty much says it all. It is a tax form that you may be required to file if you have a retirement plan that meets the following criteria:
- One-Participant: The plan covers only you, or you and your spouse, and no other employees.
- Qualified Plan: The plan is considered “qualified” under the tax code, such as a Solo 401(k) plan, or a SEP IRA, or other certain types of plans.
- Assets Above a Threshold: The total assets of your retirement plan must exceed a certain limit at the end of the plan year (we’ll get to that threshold in a minute).
This form helps the IRS to make sure your retirement funds are being managed correctly and that the plan is operating within the rules. You’ll use this form to provide information about your retirement plan and its financial activity during the year.
Who needs to file Form 5500-EZ?
Not every small business owner with a retirement plan needs to file Form 5500-EZ. The IRS has specific requirements. Here’s how to know if you need to file:
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The “One-Participant” Rule: If your retirement plan covers anyone besides you and/or your spouse, you don’t use this form. Instead, you’ll likely need to file Form 5500, which is more extensive.
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Asset Threshold: The biggest factor in determining if you need to file is the total value of your plan’s assets at the end of the plan year. If the total value of your plan’s assets at the end of the year is $250,000 or less, you are not required to file a Form 5500-EZ with the IRS. However, you might still want to file it if it’s helpful for your records, even if not required. If the total value of your plan’s assets at the end of the year exceeds $250,000, you’re required to file Form 5500-EZ.
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Types of Plans Form 5500-EZ is usually used for plans such as:
- Solo 401(k) plans
- Simplified Employee Pension (SEP) plans
- SIMPLE IRA plans (these can use Form 5500-EZ, but many will not meet the asset threshold and will not be required to file.
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Owner/Spouse Rule Only business owners or their spouses can be covered in this plan. You can’t have regular employees in this retirement plan.
If you meet the one-participant rule and the asset threshold, then you are required to file Form 5500-EZ with the IRS. It’s important to note that if you have multiple retirement plans that meet the requirements, you will need to file a form 5500-EZ for each separate plan.
When is Form 5500-EZ Due?
The due date for Form 5500-EZ is the last day of the 7th month after the end of your plan year. For most small businesses, that’s December 31st, which means the due date is usually July 31st of the following year. If you use a different plan year, then you need to calculate the due date accordingly. For example, if your plan year ends on June 30, the due date will be January 31 of the next calendar year.
You can also request an automatic extension of up to 2 1/2 months by filing Form 5558, Application for Extension of Time to File Certain Employee Plan Returns, but it’s generally best to file on time to avoid any potential penalties or issues.
What Information Do You Need to Report on Form 5500-EZ?
Form 5500-EZ is less complex than Form 5500, but you’ll still need to gather some information, including:
- Plan Information: The name of the retirement plan, its plan number, and the type of plan (e.g., solo 401(k)).
- Business Information: The name and EIN of your business, as well as your address and other details.
- Plan Assets: The total value of assets held in your plan at the beginning and end of the year, categorized by type (e.g., stocks, bonds, cash).
- Contributions: The total amount of money you contributed to the plan during the plan year.
- Distributions: The total amount of money distributed from the plan to you during the year.
- Trustee Information: The name and contact information for the person responsible for managing the plan’s funds (often you).
You will need to keep detailed records about your retirement plan to help you complete the form correctly. This might include your investment statements, contribution records, and any transactions you’ve made with your plan.
How to File Form 5500-EZ
Form 5500-EZ must be filed electronically through the Department of Labor’s EFAST2 system. EFAST2 is a system that receives and processes forms related to retirement plans. You’ll need to register an account with EFAST2 if you don’t already have one.
While you are completing the form, you have a few choices about who should prepare it. Many small business owners file Form 5500-EZ themselves, particularly if they are comfortable working with forms and are confident in their tax knowledge. You can also have a tax preparer complete it for you. A professional tax advisor, accountant, or enrolled agent can also help guide you through the filing process. The good news is that it is generally a fairly short and simple form.
Penalties for Not Filing or Filing Late
Failing to file Form 5500-EZ on time, or failing to file it at all, can lead to penalties. The IRS will generally assess a penalty of $250 per day that your filing is late, up to a maximum of $150,000. The penalty for filing an incomplete or inaccurate return can also be significant. This is why it is vital to be diligent in filing the Form 5500-EZ accurately and on time.
Tips for Successfully Filing Form 5500-EZ
- Start Early: Don’t wait until the last minute to gather your financial information and prepare the form.
- Keep Detailed Records: Maintain accurate and complete records of all your retirement plan transactions.
- Double-Check Your Work: Before submitting the form, carefully review all the information you’ve entered.
- Seek Help If Needed: Don’t hesitate to consult a qualified tax professional if you’re unsure about any aspect of the filing process.
Key Takeaways
Form 5500-EZ is an important form for certain small business owners with retirement plans. Here are the key points to remember:
- It’s for one-participant plans (only covering you or you and your spouse).
- It’s required if your plan’s assets exceed $250,000 at the end of the year.
- The due date is usually July 31st, unless you use a different plan year.
- You need to file electronically through the EFAST2 system.
- Penalties apply for late or inaccurate filings.
Understanding Form 5500-EZ is crucial for small business owners with qualifying retirement plans. By staying informed, keeping good records, and seeking help when needed, you can navigate this process with confidence. You are on the path to a secure retirement for yourself and your spouse, so it’s important to maintain your plans accurately.