What is Form 5330

Form 5330 is an essential IRS form used primarily to report and pay excise taxes related to various retirement plans, including 401(k) plans, 403(b) plans, and other employee benefit schemes.

These taxes are typically triggered by prohibited transactions, funding deficiencies, excess contributions, and other compliance issues within these plans.

• Prohibited Transactions: If a prohibited transaction occurs, the excise tax is due on the first day of the plan year following the year in which the transaction took place
• Excess Contributions: Excise taxes on excess contributions to a retirement plan are generally due by the filing deadline of Form 5330, which is the last day of the seventh month after the end of the plan year
• Funding Deficiencies: For excise taxes related to funding deficiencies, the due date is generally the same as the deadline for filing Form 5330, but it can vary based on the specifics of the plan and the deficiency
• Other Compliance Issues: The due date for excise taxes related to other compliance issues, such as nondeductible contributions or failure to meet minimum funding requirements, will also follow the filing deadline for Form 5330 unless specified otherwise by IRS guidelines

Refer to the specific IRS guidelines or consult a tax professional to determine the exact due dates for excise taxes applicable to your retirement plan's compliance issue.

Who needs to file Form 5330?

Employers, plan administrators, and disqualified persons involved in prohibited transactions or other compliance issues with employee benefit plans are required to file Form 5330. 

This group can include business owners, accountants, and any individuals responsible for managing and operating these plans.

How to complete Form 5330

Form 5330 has numerous parts, various of which must be completed, depending on the situation pertaining to your plan.

• Part I: Provide identifying information about the filer and the plan. Provide the name, address, and employer identification number (EIN) of the filer and the plan. All must complete this section
• Part II: Detail the excise tax being reported. Detail and calculate excise taxes due on prohibited transactions involving retirement plans. This section must also be completed by all. A signature and date are required at the end of this section

The following sections only apply in certain circumstances, and only the relevant schedules must be completed (section refers to relevant part of the Internal Revenue Code):

• Schedule A: Nondeductible Employer Contributions to Qualified Employer Plans. (Section 4972)
• Schedule B: Tax on Excess Contributions to Section 403(b)(7)(A) Custodial Accounts (Section 4973(a)(3)) R
• Schedule C: Tax on Prohibited Transactions (Section 4975)
• Schedule D: Tax on Failure to Meet Minimum Funding Standards (Section 4971(a))
• Schedule E: Tax on Failure to Pay Liquidity Shortfall (Section 4971(f)(1))
• Schedule F: Tax on Multiemployer Plans in Endangered or Critical Status (Sections 4971(g)(3) and 4971(g)(4))
• Schedule G: Tax on Excess Fringe Benefits (Section 4977)
• Schedule H: Tax on Excess Contributions to Certain Plans (Section 4979)
• Schedule I: Tax on Reversion of Qualified Plan Assets to an Employer (Section 4980)
• Schedule J: Tax on Failure to Provide Notice of Significant Reduction in Future Accruals (Section 4980F)
• Schedule K: Tax on Prohibited Tax Shelter Transactions (Section 4965)
• Schedule L: Tax on Failure of a CSEC Plan Sponsor to Adopt Funding Restoration Plan (Section 4971(h))

Each section requires careful attention to detail. Consulting with a tax advisor or using tax preparation software can help ensure accuracy. 

When is Form 5330 due?

The due date for Form 5330 varies based on the specific excise tax being reported. 

Generally, the form must be filed by the last day of the seventh month following the end of the plan year for which the tax is due. 

Example 1: Plan runs from April 1, 2024 to 31st March 31, 2024: Form must be filed by September 30, 2025

Example 2: Plan runs from January 1, 2024 to December 31 2024: Form must be filed by July 31, 2025

However, specific deadlines can differ. Refer to IRS guidelines or consult a tax professional for the precise due date.

What are the penalties for not filing Form 5330 on time?

Failing to file Form 5330 on time can result in significant penalties. The IRS may impose a penalty of 5% of the unpaid tax for each month the return is late, up to a maximum of 25%. 

Additionally, interest on any unpaid tax may accrue from the due date of the return until the tax is paid.

Form 5330 schedules explained

Here in brief is the information requested by each of the 10 schedules that accompany Form 5330:

Schedule A: Prohibited Transactions

Details specific information about prohibited transactions between a retirement plan and disqualified persons, calculating the excise taxes owed.

Schedule B: Failure to Distribute Income

Reports failures to distribute income as required by the plan, detailing the excise taxes resulting from these failures.

Schedule C: Reversions to Employer

Calculates excise taxes on amounts reverted from the retirement plan back to the employer.

Schedule D: Minimum Funding Standards

Covers failures to meet minimum funding standards for defined benefit plans, detailing the excise taxes due.

Schedule E: Nondeductible Employer Contributions

Reports contributions exceeding deductible limits to qualified plans and the resulting excise taxes.

Schedule F: Excess Contributions to Cash or Deferred Arrangements

Details excess contributions to 401(k) and similar plans, calculating the associated excise taxes.

Schedule G: Funding Deficiencies for Multiemployer Plans

Reports funding deficiencies in multiemployer plans and calculates the excise taxes owed.

Schedule H: Failure to Meet Specific Minimum Funding Standards

Details specific failures to meet minimum funding standards, calculating the associated excise taxes.

Schedule I: Excess Fringe Benefits

Calculates excise taxes on excessive fringe benefits provided by the retirement plan.

Schedule J: Excess Allocations to Employee Stock Ownership Plans (ESOPs)

Reports excess allocations to ESOPs and calculates the resulting excise taxes.

Prohibited transactions and Form 5330

Prohibited transactions refer to certain interactions between a retirement plan and a disqualified person that are not permitted under ERISA (Employee Retirement Income Security Act) and the Internal Revenue Code. These can include:

• Sales, exchanges, or leases of property
• Lending money or extending credit
• Furnishing goods, services, or facilities

Reporting these transactions on Form 5330 involves calculating and paying the appropriate excise tax.

How do “Excess Contributions” relate to Form 5330?

Excess contributions occur when an employer or employee contributes more to a retirement plan than allowed under IRS limits. 

Form 5330 is used to report these excess contributions and calculate the excise tax owed, typically 10% of the excess contribution amount.

Can Form 5330 be filed electronically?

Form 5330 can be filed electronically using the IRS Modernized e-File (MeF) System, through any authorized Form 5330 e-file provider.

As per regulations issued in February 2023, any filing relating to a tax year ending on or after December 31, 2023, must be filed electronically.

This is another reason to invest in Deel’s PEO services, which can help you prepare such filings with accuracy, completeness, and in a timely manner.

Ensuring compliance with ERISA using Form 5330

Form 5330 helps ensure compliance with ERISA by requiring the reporting and payment of excise taxes related to prohibited transactions, funding deficiencies, and other compliance issues. 

ERISA (Employee Retirement Income Security Act) guidelines are federal regulations that protect employees' retirement and welfare benefit plans. They require plans to provide detailed information to participants, establish fiduciary standards, and set minimum participation, vesting, benefit accrual, and funding standards. 

ERISA mandates fair grievance and appeals processes and is enforced by the Department of Labor. The Pension Benefit Guaranty Corporation (PBGC) provides insurance for certain retirement plans, ensuring participant benefits if a plan is terminated.

Filing this form demonstrates adherence to ERISA guidelines, protecting the interests of plan participants and beneficiaries.

Are there legal and compliance issues associated with Form 5330?

Legal and compliance issues related to Form 5330 include:

• Accurate reporting of prohibited transactions and other excise tax-triggering events
• Timely filing and payment of excise taxes to avoid penalties and interest
• Maintaining thorough records to support the information reported on the form
• Staying informed about changes in IRS regulations and guidelines to maintain compliance

Following these four principles when filing a Form 5330 will ensure you stay on top of your annual filing and tax responsibilities

Common mistakes to avoid when filing Form 5330

To avoid common mistakes when filing Form 5330, employers should:

• Thoroughly review IRS instructions and guidelines for the form
• Double-check all calculations and entries for accuracy
• Keep detailed records of all transactions and contributions related to the plan
• Consult with a tax professional or use specialized software to assist with the filing process

Regularly review and update internal compliance procedures to ensure ongoing adherence to IRS and ERISA requirements.

By understanding the purpose and requirements of Form 5330, employers and plan administrators can effectively manage their compliance obligations and avoid costly penalties. 

For more information on how Deel can assist with managing employee benefit plans and ensuring compliance, consider booking a demo to learn more about Deel PEO and US Payroll products.

Disclaimer: This content is for informational purposes only and is not intended as tax or legal advice. The information provided is correct as of the original publication date.