Solo 401(k) Neglect

Submitted by Doug Stecklein on Wed, 2020-01-29 15:24

17 years ago I had a solo 401(k) plan started for my sole proprietorship. I made contributions for a few years until I hired employees, became a corporation, and switched to a Simple IRA for my company plan.
I never formally closed the 401k. There has been no activity with the 401(k) account (contributions/distributions) since the Simple IRA was started, but my original contributions have been invested in stocks and 3 years ago the account balance grew to over $250,000. I just realized I am delinquent on filing form 5500ez for 2 of those years and I probably should have formally closed the plan long ago.
What is the best plan of action?
Immediately close the solo 401(k)?
Fill out form 5500ez for 2 delinquent years and current year, pay the $500 per delinquency(penalty relief fine), roll funds into an IRA, and close the plan?



Submitted by Alan - IRA critic on Wed, 2020-01-29 15:54

  • First, I would act fast because the penalties have just been increased 10X over per the following. The EFAST2 system using 5500 SF is easier, and MAY offer a better chance for penalty relief:
  • https://www.irs.gov/pub/irs-prior/i5500ez–2019.pdf
  • Next, read the following Rev Proc 2015-32 regarding a permanent penalty relief program as follows:
  • https://www.irs.gov/pub/irs-drop/rp-15-32.pdf
  • Roll over the plan to an IRA before filing your final 5500. Again, if you act quickly the IRS is more likely to be lenient since they are obviously aware of the effect of the 10X fee increase.


Submitted by Doug Stecklein on Wed, 2020-01-29 16:48

  • Wow!  A $150,000 fine for filing a form late seems a bit excessive.  
  • Do you have a recommendation on a CPA that could help me resolve this?  I really want to make sure I do everything correctly when filing for penalty relief to avoid much bigger fines.
  • Thank you for the links and advice!

 



Submitted by Alan - IRA critic on Wed, 2020-01-29 22:12

With such a huge increase, the IRS will likely go easy for awhile, but that’s another reason to take care of the problem before the IRS exhausts any grace periods they may offer. With respect to CPAs or accountants, you should be able to find one locally. Perhaps an acquintance can recommend one.



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