CheckBook-Control Retirement Filing Requirements
Checkbook Control and Self-Directed Retirement Plans, such as IRA-LLCs, Solo 401Ks & QRPs, and DB Plans, are structured so that no additional tax filings are required under most circumstances.
Note: To the extent that there are filing requirements for your retirement account or retirement account owned entity – LLC or trust – such filings are usually independent of your personal tax return. Read on for details.
For Self-directed Solo 401k/QRP and Defined Benefit plans, once plan assets at year-end exceed $250,000, Form 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan must be filed with the IRS. Form 5500-EZ is a short and straightforward informational return; hence, the name 5500-“easy.” This filing requirement does not apply to Checkbook IRA Plans.
Under certain circumstances tax filings may be required for your SDIRA, Solo K, or DB Plan. Although there are no filings requirements unique to self-directed retirement plans, the control provided by checkbook plans enables the account-holder to invest creatively, which may trigger tax filing requirements. Following is an overview of potentially applicable tax filing requirements for SD-IRAs, SD-401Ks, and SD-DB Plans.
Checkbook Solo 401k and Defined Benefit Plans
Annual Return of One-Participant (Owners and Their Spouses) Qualified Retirement Plan
Form 5500-EZ is an informational return required for qualified plans if the total of the plan’s assets and the assets of all other one-participant plans maintained by an employer at the end of the plan year exceeds $250,000. Form 5500-EZ is used by the plan trustee to report upon changes in plan assets during the year. No taxes are paid with the filing.
UDFI, UBTI, & UBIT Qualified Plan Filings
IRS Form 990-T Exempt Organization Business Income Tax Return must be filed by the 15th day of the fourth month after the end of the plan’s taxable year (generally April 15) to report Unrelated Business Taxable Income (UBTI), Unrelated Debt Financed Income (UDFI), and the amount of Unrelated Business Income Tax (UBIT) due.
Retirement Plans that generate UBTI may have to pay quarterly estimated taxes using IRS Form 990-W Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations. All tax filings are done under the plan’s trust EIN and all tax payments are made from retirement funds. Expenses related to the filing, but not the tax, may be paid by either the Solo 401k Plan or the Solo 401k Plan Sponsor. The same applies to all Qualified Plans, such as Defined Benefit and Cash Balance plans.
Section 512(b)(12) provides for a specific deduction of $1,000 against UBTI. Therefore, UBIT filings are required only if Unrelated Business Taxable Income exceeds $1,000 for the year. However, it may be advantageous to file in order to claim a loss-carryforward to offset future UBTI.
Prohibited Transactions Qualified Plan Filings
IRS Form 5330 Return of Excise Taxes Related to Employee Benefit Plans must be filed by a disqualified person liable for tax under IRC Section 4975 for participating in a prohibited transaction.
Rollovers, Distributions, and In-Plan Roth Conversions QP Filings
IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. must be filed whenever funds are distributed from a retirement plan, whether or not that distribution is taxable. Additionally, in-plan Roth conversions which may be allowed by a Solo 401k are reported on Form 1099-R. Generally, at Solo 401k plan inception and throughout its operation you should not have reason to file a Form 1009-R.
IRS Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts may be required if early withdrawals or excess contributions are made from-or-to a Checkbook Retirement Plan. Form 5329 is part of an account holder’s personal tax return, IRS Form 1040.
Checkbook Control IRAs
ReSure IRA-LLC Retirement Plans usually utilize a single-member limited liability company, which is a disregarded entity for tax purposes. Therefore, no federal tax filings are required at the entity level.
An annual valuation of assets must be provided to the qualified custodian, which files IRS Form 5498, IRA Contribution Information each year. Likewise, all distributions and withdrawals are reported by qualified custodians on Form 1099-R.
Multi-Member IRA-LLCs and IRA C-Corporations, which are not disregarded entities for tax purposes, do have entity level tax filing requirements. A Partnership IRA-LLC files IRS Form 1065 U.S. Return of Partnership Income and distributes an IRS Form K-1 Partner’s Share of Income, Deductions, Credits, etc. to each partner. A C-Corp IRA files IRS Form 1120 U.S. Corporation Income Tax Return and distribute IRS Form 1099-DIV to shareholders when dividends are issued.
S-Corps cannot have SDIRA shareholders. Therefore IRS Form 1120S U.S. Income Tax Return for an S Corporation should not be a required filing for a Checkbook IRA investment.
The State in which your LLC is domiciled may require periodic filings to maintain the status of the entity.
UDFI, UBIT, UBTI Checkbook IRA Filing Requirements
UBIT reporting and payment for a Checkbook IRA/LLC is similar to that of Qualified Plans. Form 990-T is used for annual filing when UBTI reaches $1,000 and Form 990-W is used to make estimated payments, using a unique EIN obtained specially for the IRA. All filings and tax related expenses must be paid exclusively from IRA funds.
Prohibited Transactions Checkbook IRA Filings
The required filing depends on which disqualified person engages the Self-Directed IRA in a prohibited transaction. If the account-owner beneficiary engages the account in a prohibited transaction the IRA is treated as entirely distributed, requiring the filing of a 1099-R by the qualified custodian and the filing of Form 5329 by the disqualified person. If the prohibited transaction involves a disqualified person other than the IRA owner or beneficiary, that disqualified person must file Form 5330.
Contributions, Rollovers, Distributions, and Roth Conversions Checkbook IRA Filings
IRS Forms 1099-R and 5498 are filed by the qualified IRA custodian, not the account-holder. If Form 5329 is required, it is not filed by the custodian but rather is attached to the account holder’s personal tax return, IRS Form 1040.