Characteristic Code 3B

[BG5150]

If the plan covers a 100% owner and spouse can/should we use code 3B on the 5500-SF?

[CuseFan]

If considered self-employed (sole prop Sched C), yes.

[C. B. Zeller]

If the plan covers only a 100% owner and their spouse, then they should be filing a 5500-EZ, not SF.

[BG5150]

1 hour ago, CuseFan said:

If considered self-employed (sole prop Sched C), yes.

LLC taxed as partnership

 

[BG5150]

18 minutes ago, C. B. Zeller said:

If the plan covers only a 100% owner and their spouse, then they should be filing a 5500-EZ, not SF.

Do they have to?  They may hire someone soon.

Will there be a problem going between SF to EZ to SF...?

[C. B. Zeller]

Yes, they have to.

Unless the assets are less than $250k, in which case, they don't have a filing requirement at all.

[BG5150]

9 minutes ago, C. B. Zeller said:

Yes, they have to.

Unless the assets are less than $250k, in which case, they don't have a filing requirement at all.

They are under $250k ($248, lol)

But the've filed SF's in the past b/c they had an employee.  I'd rather file some form than just skip it and have to deal with that IRS letter.

What's the penalty if they file SF and not EZ?

[Bri]

The same as for not filing the proper form at all, I'd guess.

[BG5150]

How would they even know?

[BG5150]

The instructions for the SF says who may file the form:

Quote

 

The Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, is a simplified annual

reporting form for use by certain small pension and welfare benefit plans. To be eligible to use the Form

5500-SF, the plan must:

• Be a small plan (i.e., generally have fewer than 100 participants at the beginning of the plan year),

• Meet the conditions for being exempt from the requirement that the plan’s books and records be audited

by an independent qualified public accountant (IQPA),

• Have 100% of its assets invested in certain secure investments with a readily determinable fair value,

• Hold no employer securities,

• Not be a multiemployer plan,

• Not be required to file a Form M-1, Report for Multiple-Employer Welfare Arrangements (MEWAs) and Certain

Entities Claiming Exception (ECEs) for the plan year,

and

• Not be a pooled employer plan. See ERISA section 3(43).

 

The instrux  go on further to say those who cannot file the SF must file either 5500 or EZ.  The plan in question is only 2 people.  So it qualifies under the first bullet.  It does not say the plan cannot be a one-participant plan.

So why can't we just file the SF?

 

[C. B. Zeller]

It also says

Quote

Plans Exempt From Filing

Under regulations and applicable guidance, some pension benefit plans and many welfare benefit plans with fewer than 100 participants are exempt from filing an annual return/report. Do not file a Form 5500-SF for an employee benefit plan that is any of the following:

...

9. A “one-participant plan.” However, certain one-participant plans are required to file the Form 5500-EZ, Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan, on paper with the IRS or electronically with EFAST2.

 

[BG5150]

Good point.

[BG5150]

Turns out, it may be an S-corp....

[David D]

You need to find out whether it's an S Corp that contributions are based on w-2 wages, or a partnership that bases contributions on line 14a of each K-1.

[austin3515]

BG150 I think I would:

1) File a 5500-SF for the final year that included a non-owner for any portion of the year (i.e., if the non-owner closed their account in 2025, then file an SF for 2025).

2) File a 5500-EZ in 2026, even if under $250K but mark it as a final 5500 (unless assets go over 250K by year end).

3) If a non-owner becomes eligible during 2026 then obviously keep filing SF.

[BG5150]

Why would I mark it 'final'?

 

[austin3515]

My understanding is that when a 5500-EZ has less than 250,000 you can mark it as a final 5500, which is what tells the IRS that no filing is due for the following year.  I don't see anything in the instructions about this but I think it is better to do this then just not file one in the following year.

[RatherBeGolfing]

37 minutes ago, austin3515 said:

My understanding is that when a 5500-EZ has less than 250,000 you can mark it as a final 5500, which is what tells the IRS that no filing is due for the following year.  I don't see anything in the instructions about this but I think it is better to do this then just not file one in the following year.

As far as I'm aware, this is not an option. It wouldn't pass edit checks since the IRS logic looks for $0 in EOY assets and no participants at the end of the year for a final 5500.