CheckBook Control Filing Requirements

Checkbook Control and Self-Directed Retirement Plans are structured so that no additional tax filings are required under most circumstances.

Once plan assets at year-end exceed $250,000, Self-directed Solo 401k and defined benefit plans must file Form 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan with the IRS. Form 5500-EZ is a short and straightforward informational return. This filing requirement does not apply to Checkbook IRA Plans.

Following is an outline of tax filings that may be required under certain circumstances. While 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 could trigger tax filing requirements.

Checkbook Control Solo 401k and Defined Benefit Plans

Annual Return of One-Participant (Owners and Their Spouses) 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 year plan year exceeds $250,000. Form 5500-EZ is not related to the payment of any tax, but rather to report upon changes in plan assets during the year, by the plan trustee.

UDFI, UBTI, & UBIT

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 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 the plan or the plan sponsor. This filing is only required if UBIT is at least $1,000 for the year.

Prohibited Transactions

IRS Form 5330 Return of Excise Taxes Related to Employee Benefit Plans must by a disqualified person liable tax under section 4975 for participating in a prohibited transaction.

Rollovers, Distributions, and In-Plan Roth Conversions

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, during inception and 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 a Checkbook Retirement Plan. Form 5329 is part of an account holder’s personal tax return, IRS Form 1040.

Checkbook Control IRAs

The IRA-LLC Retirement Plan will usually utilize a single-member limited liability company, which is a disregarded entity for tax purposes. This means that no tax filings are required and all taxable income flows through to the IRA account that is the sole member of the LLC. IRA filings, in turn, are handled by the qualified custodian.

An annual valuation of assets must be provided to the qualified custodian, which will file IRS Form 5498, IRA Contribution Information each year. Likewise, all distributions and withdrawals are reported by qualified custodians on Form 1099-R.

If the Checkbook IRA becomes a member of a multimember LLC or a shareholder of a C-corporation, which are not disregarded entities for tax purposes, additional filings may be required by that business entity. A partnership 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 corporation files IRS Form 1120 U.S. Corporation Income Tax Return and distribute IRS Form 1099-DIV to shareholders when dividends are issued. As a self-directed retirement plan cannot be a shareholder in an S-corporation, IRS Form 1120S U.S. Income Tax Return for an S Corporation should not be a required filing for a Checkbook Retirement Account investment.

The State in which your LLC may require a periodic filing to maintain the status of the entity.

UDFI, UBIT, UBTI

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 an EIN obtained specially for the IRA. All filing and tax related expenses must be paid exclusively from IRA funds.

Prohibited Transactions

The required filing depends on which disqualified person engages the self-directed IRA in a prohibited transaction. If the account-owner beneficiary engage 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

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 is attached to the account holder’s personal tax return, IRS Form 1040.