Solo 401(k) Form 5500-EZ Rules: Avoid IRS Penalties Up to $150,000 | VIP Wealth Advisors

For self-employed professionals and business owners, the Solo 401(k) is a retirement powerhouse. It allows massive contribution limits, the ability to make Roth deferrals, roll in old IRAs, and even take loans. For anyone running their own show, it's one of the most flexible and tax-efficient tools available.

This form doesn't get talked about much because it isn't needed when your plan is small. Then one day, usually after a big IRA rollover or years of contributions and compounding, your plan crosses a line and suddenly you've got a filing requirement with real teeth behind it. Ignore it, and the IRS can hammer you with penalties so disproportionate that it feels medieval.

Most Solo 401(k) owners have never even heard of this form until it's too late. Let's change that.

Form 5500-EZ is an annual return that the IRS and Department of Labor (DOL) use to track “one-participant retirement plans.” In plain English: retirement plans that cover only the owner and (if applicable) a spouse.

For large employer plans, Form 5500 is the standard. For Solo 401(k)s, the simplified version — Form 5500-EZ — does the job. It provides basic information about the plan, assets, and contributions so regulators can ensure compliance.

The form itself isn't complicated. It asks for things like:

• Beginning and ending plan assets
• Contributions made during the year
• Distributions taken
• Plan codes to identify features (profit sharing, Roth, rollover, etc.)

Filling it out usually takes less than an hour. The issue isn't complexity; it's knowing when you're required to file and making sure you don't miss the deadline.

Here's the rule in black and white:

• You must file Form 5500-EZ if your Solo 401(k) had more than $250,000 in assets at the end of the plan year.
• You must also file if the plan terminates, regardless of asset size.

That's it. Those are the two triggers.

For nearly everyone, the plan year is the calendar year, ending on December 31. That means the test is simple: look at your Solo 401(k) balance on December 31. If it's over $250,000, congratulations, you've got a filing requirement for that year.

Once the $250,000 threshold is crossed, the clock starts ticking.

• Deadline: The filing is due on the last day of the seventh month after plan year-end. For calendar-year plans, that's July 31.
• Extension: You can extend the deadline to October 15 by filing IRS Form 5558 by July 31. That extension is automatic if you submit the form on time.

Miss the July 31 deadline without an extension, and technically, you're delinquent on day one.

That's not a typo. $250 a day. $150,000 maximum. For a form that asks for little more than your plan's beginning balance, ending balance, and contribution amount.

Now imagine someone with a Solo 401(k) that's been over $250,000 for five years and never filed. They could be facing theoretical penalties of well over six figures.

In practice, the IRS doesn't continually assess the full statutory amount, but the threat is real. And once a penalty notice is issued, you're no longer eligible for the one lifeline the government gives you — the Delinquent Filer Voluntary Compliance Program (DFVCP).

The DFVCP is the IRS and DOL's amnesty program for late filers. It exists because they know people often miss this requirement, typically due to ignorance rather than malice.

Here's how it works:

• Instead of $250/day penalties, you pay $500 per late return.
• The maximum penalty is $1,500 per plan, regardless of the number of years late.
• You file the missing returns electronically through the EFAST2 system, check the DFVCP box, and pay the reduced penalty online.

Once processed, the slate is clean. The government considers the plan in compliance, and you move forward as if nothing happened.

The key caveat: you must act before the IRS sends you a penalty notice. If they catch you first, DFVCP is off the table, and you're stuck begging for abatement.

Here are the most common scenarios that trigger unexpected 5500-EZ filings:

High-income taxpayers who can't contribute directly to a Roth IRA often use the “backdoor Roth” strategy. A common first step is rolling Traditional IRA balances into a Solo 401(k) to avoid the pro-rata rule. That single rollover can spike the plan balance above $250,000 overnight, creating a filing requirement most people don't know about.

Even without a rollover, steady contributions and market growth compound quickly. Someone maxing out contributions can easily pass $250,000 after a handful of years.

When a Solo 401(k) is shut down, perhaps after selling a business or retiring, a final 5500-EZ must be filed regardless of balance. Many people forget this step during the wind-down process.

Filing Form 5500-EZ isn't like filing your tax return. There's no TurboTax equivalent. Instead, it must be filed through the Department of Labor's EFAST2 system.

Here's the workflow:

• Plan Administrator (you, the owner): Must register as a Filing Signer with EFAST2. This is the only person authorized to sign and submit the form electronically.
• Advisor/Accountant: Can register as a Filing Author or Filing Preparer. This allows them to prepare the form on your behalf, but the plan administrator has to hit the final “Sign and File” button.

The process looks like this:

• The advisor prepares the form online, entering plan information, assets, contributions, and plan codes.
• The plan administrator logs in, reviews, electronically signs, and then submits.
• Both receive confirmation.

That's it. It's simple — once you know it exists.

To prepare a 5500-EZ, gather:

• Plan name and number (first plan is usually 001)
• Employer EIN (not SSN)
• Plan year start and end dates (usually January 1 – December 31)
• Beginning-of-year and end-of-year assets
• Contributions made during the year (employee + employer)
• Distributions, if any
• Plan codes identifying plan features (e.g., profit-sharing, Roth, rollovers)

Your adoption agreement and custodian statements usually provide everything you need.

Take a self-employed consultant who rolled $200,000 from an old Traditional IRA into her Solo 401(k) in February. By year-end, the plan had grown to $275,000.

• December 31 balance: $275,000 → triggers filing.
• First Form 5500-EZ due: July 31 of the following year.
• If ignored, penalties accrue at $250/day, capped at $150,000.
• If filed late under DFVCP: $500 flat penalty.

The difference between ignoring the rule and fixing it proactively can literally be the cost of a new house.

One of the most dangerous misconceptions is assuming your custodian — Fidelity, Vanguard, Schwab, Altruist, etc. — handles this for you. They don't!

They report contributions and balances on 5498s and 1099-Rs. But they are not responsible for Form 5500-EZ. That responsibility rests squarely on the plan sponsor, the business owner.

If you don't know about it, nobody is going to tap you on the shoulder.

For advisors and high-income individuals using Solo 401(k)s strategically, this filing has ripple effects:

• Backdoor Roth readiness: Rolling IRAs into a Solo 401(k) clears the pro-rata rule, but may create a filing obligation. Don't trigger one strategy while ignoring the compliance that comes with it.
• Estate and exit planning: If the business is sold or the plan terminated, don't forget the final 5500-EZ. Skipping this step can create a headache years later when the IRS asks why the plan never closed properly.
• Audit protection: Keeping clean filings on record avoids unnecessary questions in an IRS audit.

The Solo 401(k) is one of the best tools for the self-employed to build wealth and reduce taxes. But once assets cross $250,000, Form 5500-EZ is not optional.

Key takeaways:

• Check your plan balance at year-end.
• If over $250,000, file Form 5500-EZ by July 31.
• File a final 5500-EZ when terminating a plan, regardless of size.
• If late, use DFVCP immediately to cap penalties at $500 per return.
• Don't assume your custodian will do this for you; the responsibility is yours.

A missed 5500-EZ is a paper cut that can turn into a financial amputation if ignored. With awareness and a little proactive planning, it's an easy win.