What is the Form 5500?
Who must file the Form 5500?
A Form 5500 is required to be filed each year if the plan has employees or more than $250,000 if the business owner is self employed. It is the responsibility of the plan sponsor to ensure the filing is done in a timely manner. Most plan sponsors hire a third party administrator who will prepare the form and file it with the IRS using IRS approved software.
It is a different story all together for self-employed people who manage their own plan as they may not be aware of the requirement to file this form. The good news is that the IRS has relaxed the requirement to file the Form 5500 until the total plan assets reach $250,000 for self-employed individuals. In other words, self-employed individuals don’t need to file this form until they have more than $250,000 in the plan.
What is the deadline to file the Form 5500?
The Form 5500 is due at the end of the seventh month after the plan year ends. If your retirement plan is a calendar year plan, which means the plan year begins on 1/1 and ends on 12/31, the last date to file the Form 5500 is July 31st.
You can file Form 5558 with the IRS and request a two and half month extension. If you do file this extension, the last day to file the Form 5500 is October 15th.
A lot of self-employed individuals open 401(k) accounts at a brokerage firm to eliminate the administrative costs. However, these brokerage forms do not file the Form 5500 for your 401(k) profit sharing plan, and they leave it up to the self-employed individual to take care of these filings. If you are self-employed, please check if you need to file this form for 2019.
As they say, the devil is in the details. The regulations say that the individual needs to account for the total assets in all of his retirement plans, and then decide if they have more than $250,000. Many people count these assets individually for each retirement plan account that they have and miss filing the Form 5500.
Let’s consider an example that we commonly come across as retirement plan administrators. A self- employed individual has been contributing to a profit sharing 401(k) plan and the assets are currently at $220,000. A defined benefit plan was set up in 2018 to enable a contribution of $100,000 in the first year as business profits were high.
In this case, a lot of self-employed individuals miss filing the Form 5500 for the profit sharing 401(k) plan thinking that the assets are less than $250,000. However, they need to add up the total assets of the defined benefit and 401(k) plans and file a Form 5500 for both plans individually.
There are three different versions of this Form based on the complexity of the return involved.
The Form 5500-EZ (Easy) is the simplest of them and can be completed by the self-employed individual with some basic information. Instructions for this form can be found here: https://www.irs.gov/pub/irs-pdf/i5500ez.pdf
If you are self-employed, please check the level of assets in your plan on Dec 31st, 2018. If you filed an extension for your tax returns, you may still have time to file the Form 5500 for plan year 2018. The IRS penalties start at $500 for not filing the Forms on time and it may be worth your time to confirm if you need this filing.
Please reach out to us at info@pensiondeductions.com if you need assistance in filing the Form 5500 for your pension plan.
