29.4 Plan Reporting, Loans & Prohibited Transactions

Retirement deductions require ongoing administration

Establishing a plan and deducting a contribution are only part of compliance. A business must operate the plan according to its terms, include eligible participants, transmit contributions, keep records, and file required returns. Tax qualification does not mean the arrangement is exempt from every reporting rule. A tax preparer should review plan assets, employee coverage, distributions, and related-party transactions each year rather than merely copying the prior contribution deduction.

The Form 5500 series generally reports qualified-plan information. Which form applies depends on the plan and filing conditions. Form 5500-SF is available for certain eligible small plans. Form 5500-EZ generally serves qualifying one-participant retirement plans, including owner-and-spouse arrangements meeting its requirements. A plan with eligible common-law employees cannot ignore them to claim owner-only treatment.

Owner-only filing threshold and final returns

A one-participant plan generally does not need an annual Form 5500-EZ when the total assets of all one-participant plans maintained by the employer do not exceed $250,000 at year-end, unless a final return is required. Aggregate the relevant plans rather than testing each account independently. Generally, a final return is required when the plan terminates and distributes all assets even if its assets were below the annual threshold.

For a calendar-year plan with an annual filing duty, the ordinary due date is July 31, the last day of the seventh month after the plan year ends. Form 5558 generally can request a two-and-one-half-month extension under its rules. Other extension provisions can apply when their requirements are met. The plan-year deadline is not automatically the same as the sponsor's March income-tax deadline.

Example: An owner maintains two relevant one-participant plans with year-end assets of $150,000 and $130,000. Their combined $280,000 exceeds $250,000, so an annual filing obligation generally exists. A separate final-year plan holding only $40,000 can still require a final return after all assets are distributed. Account size alone does not remove that final reporting duty.

Distribution and participant information

Form 1099-R generally reports retirement distributions, with appropriate distribution codes and taxable amounts. A direct rollover can be reportable even when it is not currently taxable. The participant's basis, Roth status, age, and applicable exceptions affect taxation. A return preparer should not treat every Form 1099-R gross distribution as ordinary income without examining those facts.

SEP and SIMPLE IRAs generally do not have the same employer Form 5500 filing requirement as a qualified pension or profit-sharing trust. IRA custodians have their own reporting obligations, including Forms 5498 and 1099-R as applicable. The absence of an employer Form 5500 does not mean no one reports contributions or distributions.

Prohibited transactions

Section 4975 generally prohibits specified transactions between a plan and a disqualified person unless an exemption applies. Disqualified persons can include fiduciaries, service providers, the employer, certain owners, and relevant family members. Examples include selling property between the plan and the owner, lending plan money to a disqualified person, using plan assets for personal benefit, and fiduciary self-dealing.

The initial excise tax generally is 15% of the amount involved for each year or part of a year in the taxable period. An additional 100% tax can apply if the transaction is not corrected within the applicable period. Form 5330 reports relevant excise taxes. Correction ordinarily requires undoing the transaction as far as possible and restoring the plan's financial position under the governing standard; simply paying the initial tax is not the same as correction.

Example: Assume the amount involved in a nonexempt qualified-plan transaction is $20,000 for one taxable-period year. The initial tax is $3,000. If the additional 100% tax becomes applicable, it is $20,000 more. Actual facts, parties, exemptions, timing, and correction rules control; this is not a flat income-tax rate on the plan's entire portfolio.

Permitted loans are different from IRA borrowing

A qualified plan may permit participant loans meeting statutory conditions. The general limit is based on the lesser of $50,000, adjusted for certain prior loan balances, or 50% of the vested account balance, with an optional limited exception for small balances. Repayment generally must occur within five years in substantially level payments at least quarterly; a principal-residence acquisition loan can have a longer term. Plan terms and applicable prohibited-transaction exemptions also matter.

An IRA does not gain that qualified-plan loan permission. Borrowing from an IRA or using it in a prohibited transaction can cause loss of IRA status and a deemed distribution under the applicable IRA rules. For an IRA owner engaging in a prohibited transaction, the account generally is treated as distributed as of the first day of the year. Do not apply only the qualified-plan 15% excise-tax example and assume the IRA remains intact.

Official references

2025 Publication 560, Form 5500-EZ instructions, and Form 5330 instructions, checked October 17, 2026.

Distinguish the reporting obligation