When an IRA needs to file
An IRA does not normally generate taxable income. Passive income, meaning interest, dividends, royalties, rent from real property, and gains from asset sales, is fully sheltered inside the plan.
A filing obligation arises when the plan earns $1,000 or more in gross Unrelated Business Taxable Income or Unrelated Debt-Financed Income during the tax year. At that point the plan files Form 990-T and pays any Unrelated Business Income Tax owed from plan funds.
UBTI arises when the plan invests in an active trade or business, such as a restaurant, car wash, or active real estate operation structured as a pass-through entity. UDFI arises when the plan uses debt financing, such as a non-recourse mortgage on a rental property.
When a Solo 401(k) needs to file
A Solo 401(k) has two potential filing obligations.
The first is Form 990-T, on the same $1,000 gross income trigger that applies to an IRA. One difference matters: when a Solo 401(k) uses debt to acquire real property directly, the resulting income is exempt from UDFI. That exemption is not available to IRAs, and it is a significant advantage for leveraged real estate.
The second is Form 5500-EZ. If total plan assets exceed $250,000 at the end of the plan year, the plan files this annual informational return with the IRS. The deadline is July 31 for calendar-year plans. A final Form 5500-EZ is also required when you terminate a plan, regardless of plan value.
What most investors experience
The majority of self-directed plan investors hold passive assets, such as rental income, private loans, and distributions from private equity, and never trigger a filing obligation beyond Form 5500-EZ for larger Solo 401(k) plans. Passive and unlevered holdings require no tax return at all.
Investing in operating businesses, using leverage inside an IRA, or receiving a K-1 that reports UBTI all change that. Any of the three is worth reviewing with your CPA ahead of the filing deadline rather than after it.
Frequently Asked Questions
Do I need to file Form 5500-EZ if my plan value dropped below $250,000 by year end?
No. The threshold is tested against the year-end value only, so a plan that peaked above $250,000 mid-year and closed at or below it has no filing obligation for that year.
Does filing Form 990-T affect my personal taxes?
No. Form 990-T is filed by the plan and any tax is paid from plan funds. Income and losses inside your plan cannot pass through to you personally, and your personal tax situation has no bearing on what the plan owes.
Does total plan value include assets held in multiple accounts?
Yes. Plan value for Form 5500-EZ purposes covers all assets held across all accounts within the plan, including cash, real estate, private placements, cryptocurrency, and outstanding loan balances.
Can I file Form 990-T or Form 5500-EZ myself?
Yes, both can be self-prepared and filed. Many investors use a CPA for Form 990-T, which involves UBTI or UDFI calculations that reward experience. Form 5500-EZ is more straightforward and can be filed on paper or through the IRS EFAST2 electronic system.