Solo 401(k) Owners: Avoid the $150,000 Penalty from IRS Form 5500-EZ
If you’re self-employed and have a Solo 401(k) with no employees other than your spouse, there’s a good chance you’ll be required to file IRS Form 5500-EZ. Unfortunately, this is one of the most commonly overlooked requirements we see in financial planning—especially for business owners managing their own retirement plans.
When Are You Required to File Form 5500-EZ?
You must file Form 5500-EZ if your Solo 401(k) plan’s total assets exceed $250,000 as of December 31st of the prior year. This includes:
- Your contributions
- Your spouse’s contributions
- All investment gains or losses
For example, if your balance hits $250,001 on December 31, 2024, you’ll need to file Form 5500-EZ by July 31, 2025. Each year after that, if your balance stays above the threshold, the requirement continues annually.
What Happens If You Forget to File?
Here’s the scary part: the IRS can impose a penalty of $250 per day, up to a maximum of $150,000 per plan. And many brokerage firms may not help you file the 5500-EZ, notify you when you need to first file it, or even remind you each year to complete and submit it by the filing due date!:
- No alert when your assets exceed $250,000
- No reminder to file by the July 31 deadline
That means the burden may be 100% on you to stay compliant.
Late Filer Relief Program
The good news? The IRS offers a Delinquent Filer Voluntary Compliance Program (DFVCP). If you file before the IRS contacts you, your penalty is capped at $1,500. But if you wait until they reach out? You could owe the full amount.
4 Steps to Stay Compliant
Here’s what we recommend:
- Track Your Balance every December 31 to see if you’ve crossed the $250,000 threshold.
- Set a Reminder to file Form 5500-EZ by July 31 each year.
- Use Tax Software or a Professional to file accurately—don’t guess.
- Keep Good Records of your contributions and year-end balances.
Final Thoughts
Solo 401(k)s are one of the best tools for retirement savings if you’re self-employed, but they come with rules—and Form 5500-EZ is a big one. Avoid the penalties and protect your retirement dollars.
If you need help reviewing your Solo 401(k) or filing the required forms, reach out—we’re here to help.
If you found this post helpful, please share it with a fellow business owner, and don’t forget to subscribe to our YouTube channel for more helpful insights.
