If you’re the owner of a solo 401k plan, here are some important forms that you may be required to file depending on your account activity.
Overview
- Form 5500-EZ: Required when you hold over $250,000 in plan assets, or if you decide to close your solo 401k and rollover or distribute all funds out of your account.
- Form 1099-R: Required any time funds/assets are moved out of your solo 401k account whether it’s a distribution, rollover, in-plan conversion, or RMD.
- Form 945: Required when you take an early distribution from your solo 401k plan in order to report the 20% withheld amount from your withdrawal.
- Form 8606: Required when you use a non-deductible IRA in order to rollover to a Roth solo 401k.
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Form 5500-EZ
Form 5500-EZ is an annual tax return required for all solo 401k plan owners with over $250,000 in plan assets. It’s essentially a yearly summary of your solo 401k that lists your contributions, rollovers, and loans. While it does not ask you to specify each asset you’re invested in, you’re required to list the value of your assets in your plan.
IRS links
Who is required to file?
You’re only required to file Form 5500-EZ if your solo 401k has over $250,000 in assets, or if you’re closing your solo 401k and rolling over or distributing all assets out of your account.
However, at Carry, we recommend filing it annually anyway, regardless of your plan’s value, due to several reasons:
- It only takes around an hour to fill out each year, and can be done completely online.
- Penalties for late or missed filings are extremely steep at $250 for everyday past the due date, capped at $150,000.
- Form 5500-EZ shows the government a clear summary of your account activity and compliance.
- The IRS has a 3 year statute of limitations, meaning they will not assess income taxes for periods later than the limitation periods. Filing Form 5500-EZ officially starts your 3 year statute of limitations which, in rare cases, can be a saving grace if you face an unexpected disqualification of your plan due to rule changes that you weren’t aware of.
It’s also recommended that you file if:
- You have filed Form 5500-EZ in the past. If you used to file Form 5500-EZ, you should continue to file if your plan assets drop under $250,000 in value. While you wouldn’t technically be required to file if your assets are below $250,000, it’s best to avoid situations where the IRS spots an irregularity and asks you questions about why you didn’t file.
- Your plan assets come close to the $250,000 requirement. If your plan assets are close to the $250,000 requirement, you should file anyways. You’re leaving too little room for error, and the penalties are so steep, that it’s a good idea to err on the safe side.Again, it only takes an hour each year, and it can save you if you or your accountant made an accounting error that would actually
How to file Form 5500-EZ
You can file Form 5500-EZ completely online through EFAST2. It’s free to file and only takes around an hour. If you prefer snail mail, print this form, fill it out, and mail it to the address below:
Mailing address
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0020
Also read: Form 5500-EZ: Why All Solo 401k Plan Owners Should File One
Deadline
The due date for Form 5500-EZ is 7 months after your company’s fiscal year. For example, of your fiscal year ends on March 30th, you would have until October 30th. If your company uses the calendar year as its fiscal year, you would have until July 31 (which is 7 months after December 31).
Form 1099-R
Anytime you move money out of a solo 401k account, you’re required to file Form 1099-R. Moving money also applies to rollovers. For example, if you transfer funds from your pre-tax solo 401k account into your Roth solo 401k, or if you rollover your solo 401k assets into another retirement plan like a Roth IRA, it would need to be reported through Form 1099-R.
IRS links
Who is required to file?
Anytime funds or assets are moved out of your solo 401k plan, you’re required to file Form 1099-R. The following actions all require reporting through Form 1099-R:
- Taking a distribution/withdrawal of $10 or more.
- In-plan Roth conversions (ie. moving money from your pre-tax solo 401k account to your Roth solo 401k account).
- Rollovers to another retirement plan (like an IRA).
- Taking a required minimum distribution (RMD).
- In-service distribution to a Roth IRA.
- Failure to repay a solo 401k loan on time.
Let’s go through each of the actions below:
Taking a distribution/withdrawal
If you take a distribution of over $10 from your solo 401k, you’re required to report the withdrawal on Form 1099-R whether it’s an early distribution (before the age of 59½) or a qualified distribution (after the age of 59½).
Qualified distributions have no penalties. To be eligible for qualified distributions, you must be at least 59½ years of age. If you’re withdrawing from your Roth solo 401k, there is an additional requirement: at least 5 years must have passed since your first contribution. Early distributions from your solo 401k plan are hit with a 10% early withdrawal penalty, plus income taxes on the amount drawn.
In-plan Roth conversions
If you have funds in your pre-tax solo 401k account and wish to move them over to your Roth solo 401k, the funds still remain in your solo 401k plan, but the transfer from pre-tax to Roth still needs to be reported on Form 1099-R. The conversion from pre-tax to Roth is a taxable event since your pre-tax solo 401k account is funded with pre-tax income, while your Roth account is funded with post-tax income. The amount of conversion gets added to your taxable income the year you make the transfer.
Will I need to pay an early distribution penalty?
No, the 10% early distribution penalty does not apply when transferring money from pre-tax to Roth. It only gets applied if you withdraw money out of your plan.
What’s the difference between pre-tax and Roth?
With a pre-tax account, you contribute money with pre-tax income (money you haven’t paid taxes on yet), and get a tax deduction for the year you contribute. For example, if you made $50,000 in income and contributed $10,000 to your pre-tax account, your new taxable income is now $40,000. In retirement, qualified distributions are taxed as ordinary income.
With a Roth account, you contribute money with post-tax income (money you’ve already paid taxes on). You don’t get any tax breaks when you contribute, but your withdrawals in retirement are completely tax-free.
Mega backdoor Roth solo 401k
A mega backdoor Roth solo 401k lets you contribute more money into your solo 401k plan than is typically allowed. Only employee contributions can be made as Roth; employer contributions must always be made as pre-tax. In 2023, the maximum employee contribution is $22,500 if you’re under 50 years of age, and $30,000 if you’re 50 years of age or older.
A mega backdoor Roth solo 401k lets you contribute up to the full solo 401k contribution limit ($66,000 if under 50, $73,500 if age 50+) entirely as Roth.
It involves contributing money to a separate After-Tax account, and then immediately rolling it over to your Roth solo 401k. Because the After-Tax account is also funded with post-tax income, the conversion is not a taxable event. The only time you might be liable for taxes is if your assets make any income within the After-Tax account before it’s transferred to your Roth solo 401k account.
Learn more about the mega backdoor Roth solo 401k
In-service distribution to a Roth IRA
When performing a mega backdoor conversion through your After-Tax account, you can also choose to transfer the funds into a Roth IRA rather than your Roth solo 401k. This action would also require reporting through Form 1099-R.
Required minimum distributions (RMD)
Most retirement plans, including the solo 401k, have required minimum distributions (also referred to as an RMD). Once you reach the age of 73, you’re required to start taking distributions out of your solo 401k plan each year until your account is emptied. The exact amount you’re required to withdraw can be found using this RMD table.
When taking an RMD, you’re required to report the distribution to the IRS using Form 1099-R.
Failure to repay a solo 401k loan on time
Some solo 401k plan providers allow you to take a loan from your account. If the option is available, you can borrow up to 50% of your account’s value, up to a maximum of $50,000. You have 5 years to repay the loan in full, or if you use the funds to purchase a primary residence, you may be able to get up to 15 years for repayment. If you fail to repay the loan on time, the loan would be treated as a distribution and you would be required to report the distribution using Form 1099-R.
How to file Form 1099-R
If you choose to file by mail, you must obtain the original copy by ordering the official IRS forms online through their website.
If you choose to file online, use an online service to ensure proper submission to the IRS. You can file 1099-R at tax1099.com.
Deadline
Form 1099-R must be filed by January 31st, and delivered to the IRS by February 28th if filing by mail, or by April 1st if filing online.
Form 945
Form 945 is used to report income tax withholdings made by businesses or organizations that are not related to wages or salaries. This typically includes federal income tax withheld from payments such as pensions, annuities, gambling winnings, backup withholding, and certain government payments.
IRS links
Who is required to file?
For solo 401k holders, the most common use for Form 945 is if you take an early distribution. When you take an early distribution from your solo 401k account, you’re required to pay a 10% penalty plus income taxes on the amount withdrawn. And because of this, you’re required to withhold 20% of the distribution for federal income taxes. Form 945 would need to be used to report the amount withheld.
How to file Form 945
You can file online through IRS.gov/EmploymentEfile.
If you wish to file a paper return, where you file depends on your location, and whether you include a payment with your Form 945.
| If you’re in… | Without a payment… | With a payment… |
|---|---|---|
| Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin | Department of the Treasury Internal Revenue Service Kansas City, MO 64999-0042 | Internal Revenue Service P.O. Box 806534 Cincinnati, OH 45280-6534 |
| Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming | Department of the Treasury Internal Revenue Service Ogden, UT 84201-0042 | Internal Revenue Service P.O. Box 932300 Louisville, KY 40293-2300 |
| No legal residence or principal place of business in any state | Department of the Treasury Internal Revenue Service P.O. Box 409101 Ogden, UT 84409 | Internal Revenue Service P.O. Box 932300 Louisville, KY 40293-2300 |
| Special filing address for exempt organizations; governmental entities; and Indian tribal governmental entities; regardless of location | Department of the Treasury Internal Revenue Service Ogden, UT 84201-0042 | Internal Revenue Service P.O. Box 932300 Louisville, KY 40293-2300 |
Deadline
Form 945 is typically due on January 31st of each year. If your tax liability payments were already made, you have until February 10th. You are not required to file in years you do not have a liability to report. If you fail to file Form 945 and pay the required taxes, you may receive a trust fund recovery penalty, which is 100% of the unpaid trust fund tax.
Form 8606
Form 8606 is used to report any IRA-related transactions where the governments needs to determine whether the action is a taxable event.
IRS links
Who is required to file?
For solo 401k owners, the most common use of Form 8606 is when you use a non-deductible IRA in order to perform a mega backdoor Roth conversion into a Roth solo 401k.
A Roth IRA is not allowed to be rolled over into a solo 401k. Therefore, you can make contributions into a non-deductible IRA instead which, like a Roth IRA, is funded with post-tax income. After contributing to a non-deductible IRA, your funds can be immediately rolled over into your Roth solo 401k. And since you contributed with post-tax income, the conversion would not be a taxable event. This also works when you want to do a conversion into a Roth IRA rather than a Roth solo 401k.
When you contribute to a non-deductible IRA, you must report the contribution using Form 8606.
Benefits of rolling over from a non-deductible IRA to a Roth solo 401k
A non-deductible IRA is a special kind of traditional IRA. It’s funded with post-tax income and you still get taxed on only your earnings when you make withdrawals in retirement. When you transfer the funds to a Roth solo 401k, your withdrawals of both contributions and earnings in retirement are completely tax-free.
How to file Form 8606
You can file Form 8606 with your annual tax return by the federal tax filing deadline, which is usually April 15th of each year. If you choose to file your taxes online, file Form 8606 along with your electronic filing.
If you fail to file Form 8606 to report a non-deductible contribution, you may have to pay a 10% early distribution penalty plus income taxes on the funds transferred. You may also have to pay a penalty of $50 to the IRS. If the contribution is overstated on the form, your penalty may increase to $100.
