The Form 5500-EZ Trap: When and How to File Correctly

It is the most expensive piece of paper you might forget to file. While Solo 401ks are low-maintenance, they have a hidden tripwire: the $250,000 Asset Threshold. Once your total plan assets (cash + stocks + crypto) exceed this amount, you must file Form 5500-EZ with the IRS every year. The penalty for missing this? A staggering $250 per day, up to $150,000. Here is how to check if you are liable and exactly how to fix it if you are already late (hint: do NOT file electronically if you are late).

BMT Tax Team BMT Tax Team · 📅 Feb 2026 · ⏱️ 6 min read · INVESTING › COMPLIANCE
Trigger
$250k
Total Plan AssetsRule
Deadline
July 31
For Calendar Year PlansFact
Penalty
$250
Per Day (Late Filing)Warn
IRS Form 5500-EZ paper filing with calculator showing $250,000 threshold

The trigger point: When assets hit $250,000 on Line 6a, filing becomes mandatory.

1. The $250,000 Tripwire

It accumulates faster than you think.

Total Plan Assets (Cash + Investments) Current: $238,000 / Trigger: $250,000
⚠️ Warning: Approaching Filing Threshold

*Definition: “Assets” includes the balance of ALL accounts in the plan (You + Spouse). It also includes the value of any outstanding participant loans.

2. Filing Requirements Checklist

Are you exempt? Check the matrix.

✅ Exempt (No Filing Needed)
  • New Plan: Assets under $250,000.
  • Ongoing Plan: Assets under $250,000.
  • Restatement: Changing providers (usually exempt if <$250k).
❌ Mandatory Filing
  • Wealthy Plan: Assets > $250,000 (Dec 31).
  • Terminating Plan: Closing the plan (Mandatory for ALL).
  • Foreign Assets: If plan holds foreign assets (check instructions).

3. The “Final Return” Trap

If you roll over your funds to an IRA and close the Solo 401k, you aren’t done yet.

The Termination Rule
When you terminate a plan, you must file a final Form 5500-EZ to notify the IRS.
• Asset Check: You must file even if assets are $0.
• The Deadline: It is NOT automatically July 31. It is the last day of the 7th month after the plan was terminated. (e.g., Terminated in June → Deadline is Jan 31).
• Result: Failure to file this “Final Return” is the most common cause of penalties.

4. Missed the Deadline? The $500 Fix

CRITICAL WARNING: If you are late, do NOT file electronically via EFAST2. The system will likely auto-assess full penalties.

Potential IRS Penalty
Up to $150,000
Rev. Proc. 2015-32 Fee
$500 Flat Fee
How to File for Relief (Paper Only)
To get the $500 cap, you must:
1. Complete a PAPER Form 5500-EZ for the missing year.
2. Write “Delinquent Return Submitted under Rev. Proc. 2015-32, Eligible for Penalty Relief” in red ink on top.
3. Attach Form 14704 and a check for $500.
4. Mail to the specific IRS address for this program (not the regular filing address).

5. Frequently Asked Questions

Can I e-file (EFAST2)?
Only if you are ON TIME. If you are filing by the July 31 deadline, please use EFAST2 (it’s faster). If you are LATE, you must use the paper method described above to avoid massive penalties.
Do I need a CPA?
Recommended. Form 5500-EZ codes can be tricky. If you have assets over $250k, paying a professional ~$300-500 to prepare this form is cheaper than the $250/day penalty for getting it wrong.