What Are 5500 Filings and Who Is Subject to Them?

If you sponsor a retirement plan, chances are you’re required to file a Form 5500. And if you’re not filing, knowingly or not, you could be facing serious penalties.

In this article, we explain what the 5500 is, who needs to file it, and how Mirador helped one client avoid tens of thousands of dollars in fines by correcting a years-long compliance issue.

What Is Form 5500?

Form 5500 is an annual filing required by the Department of Labor (DOL) and the Internal Revenue Service (IRS) for most employer-sponsored retirement plans. It functions much like a tax return for your plan: it tells regulators about the plan’s activity, financial condition, and compliance status.

What Information Does the 5500 Include?

  • Total plan assets
  • Contributions made during the year
  • Distributions paid to participants
  • Investment performance
  • Plan expenses
  • Operational details (e.g., number of participants)

If your plan is large or includes multiple participants, this form is non-negotiable. Even solo 401(k) plans may be required to file, depending on total asset value.

Who Needs to File a Form 5500?

Employers with Qualified Retirement Plans

If you sponsor a:

  • 401(k)
  • Profit sharing plan
  • Defined benefit or cash balance plan

…you’re likely required to file annually.

Solo Plans May Be Exempt, Until They Aren’t

Solo 401(k) plans (with only one participant) are exempt from filing until plan assets exceed $250,000. Once that threshold is crossed, even one-participant plans must file Form 5500-EZ annually.

Penalties for Not Filing

Failing to file Form 5500 doesn’t just trigger a slap on the wrist. The DOL and IRS can assess steep daily penalties, currently up to $2,500 per day (DOL) and $250 per day (IRS), depending on the infraction.

That means one missed form can quickly snowball into tens of thousands of dollars in fines, especially if multiple years were missed.

Case Study: “Form 55-What?”

When a financial advisor referred a high-income client to Mirador to explore a defined benefit plan, our team followed standard procedure:

“We always ask: do you already have a retirement plan in place?”

The client said yes, a 401(k) profit sharing plan he had set up years ago. But when we asked for the plan document and pulled his 5500 filings online, we found… nothing.

He had over $250,000 in plan assets, but hadn’t filed a single Form 5500 in years.

“When we asked him about the 5500, he said, ‘Form 55-what?’ That was our red flag.”

How Mirador Fixed the Problem

Once the issue was identified, our compliance team moved quickly:

  1. Verified the filing threshold had been crossed
  2. Created and submitted all missing 5500s
  3. Enrolled the client in the Delinquent Filer Voluntary Compliance Program (DFVCP)

Why the DFVCP Matters

This IRS/DOL program allows late filers to voluntarily correct mistakes before being caught. It substantially reduces penalties compared to what the agencies would impose during an audit.

“Yes, he had to pay fees, but we saved him from a potential $30,000+ hit.”

Proactive Compliance Matters

This case is not unusual. Many business owners are unaware of their filing responsibilities, especially those managing plans without a dedicated TPA or compliance partner.

At Mirador, every new engagement begins with a full plan review. Whether we’re designing a new DB plan or evaluating an existing 401(k), we look under the hood to ensure:

  • Proper filings have been made
  • Plan documents are up to date
  • Compliance gaps are identified and corrected

Don’t Wait for a Penalty Letter

If you sponsor a retirement plan, whether solo or company-wide, don’t assume you’re in compliance. Ask the hard questions. Check your filings. And if you’re unsure, get expert help.

Case Study: Why Strategic Design is Essential for Defined Benefit Plans

Defined Benefit (DB) plans—and their hybrid cousins, Cash Balance plans—are among the most powerful retirement vehicles for business owners and high-income professionals. But they require thoughtful design and ongoing strategy to deliver long-term value. Without it, even well-intentioned contributions can fall short of their full potential.

In this case study, we explore how a highly successful physician, referred to us by his CPA, nearly missed out on a million-dollar opportunity by misunderstanding how a DB plan works. It’s a powerful reminder that plan design isn’t just a technicality—it’s the engine of your wealth-building strategy.

Understanding Defined Benefit Plan Design

Defined Benefit and Cash Balance plans offer pre-tax contributions that can dramatically reduce taxable income. Unlike 401(k) plans with capped contributions, DB plans allow for six-figure annual contributions based on age, income, and years to retirement.

However, these plans are actuarially driven. Investment performance isn’t the focus—predictability and funding consistency are. That’s why strategic design is essential.

Why Defined Benefit Plans Must Be Designed Intentionally

  • DB plans are contribution-first, not return-first. The real advantage is the annual tax deduction, not chasing market performance.
  • Overperformance can backfire. If investments outperform targets, the required contribution can drop to zero, eliminating your deduction in future years.

Compliance and nondiscrimination testing matter. Pairing a DB or Cash Balance plan with a Safe Harbor 401(k) Profit Sharing plan helps you pass testing requirements and offer meaningful benefits to staff.

DB Dilemma: Missing the Forest for the Trees

Dr. Dan, a successful physician in California, was referred to us by his CPA to reduce his tax burden through a defined benefit plan. But like many high-earning professionals, Dr. Dan was laser-focused on investment returns.

“In the DB plan, we’re not trying to have great returns. The real return is the contribution deduction,” Mike explained.

That message didn’t land at first.

Dr. Dan insisted that his personal investments consistently outperformed 10%, and he didn’t want to “settle” for a 5–6% return target. He was ready to walk away from the plan entirely.

The Spreadsheet That Changed Everything

To bring the strategy into focus, Mike built a custom spreadsheet. The tool let Dr. Dan compare two paths:

  1. Taxable investing: After-tax dollars, chasing 10%+ returns.
  2. Tax-deferred DB contributions: Pre-tax savings with a modest 5% return.

The result? Over a 15-year projection, the defined benefit strategy outperformed by approximately $1 million.

Dr. Dan’s response:

“Well, I think the DB plan might be good for me. I need a tax deduction.”

The Real Power of a Defined Benefit Plan

What finally shifted Dr. Dan’s thinking was this realization:

“The tax deductions are like a match from the federal and state government.”

If you contribute $200,000 a year into a DB plan, you’re saving up to $100,000 a year in taxes. That’s not a theory—it’s cash in hand.

Strategic Design Supports Recruiting and Retention, Too

While Dr. Dan’s plan focused on owner savings, many high-income business owners layer a DB plan with a Safe Harbor 401(k) Profit Sharing plan. Why?

  • Pass nondiscrimination testing: These combined plans meet IRS requirements for fair treatment of employees.
  • Reward your team: You can offer staff meaningful retirement benefits without overextending your budget.
  • Attract and retain top talent: Competitive retirement packages are a magnet for high-performing employees.

Strategy Turns Complexity Into Value

Defined Benefit and Cash Balance plans are not set-it-and-forget-it. They require expertise, actuarial insight, and a clear understanding of the tradeoffs between return, contribution, and compliance.

With strategic design, these plans can reduce tax liability, build retirement wealth, and support a healthy company culture. Without it, business owners may miss out on millions.

Control Group vs. Affiliated Service Group: What’s the Difference?

When it comes to retirement plan compliance, few topics create more confusion or risk than Control Groups and Affiliated Service Groups (ASGs). They sound like formal structures, but they’re simply IRS-defined groupings of companies that must be treated as a single employer for the purpose of retirement plan testing and compliance.

In our latest video, Mirador Partners, Rachel Rosner and Alison Quesada dig into the details. Here, we expand on that discussion to define these terms clearly and walk through common examples of how they apply.

Why These Rules Matter

Every year, compliance teams revisit this topic for a reason: misunderstanding these group structures can lead to failed nondiscrimination tests, disqualified plans, and significant financial penalties.

If you own multiple businesses, or are affiliated with other entities through service relationships, you must know whether you’re part of a Control Group or an Affiliated Service Group. Your retirement plan’s compliance depends on it.

What Is a Control Group?

A Control Group exists when one or more businesses are under common ownership or control. The IRS defines two main types:

Parent-Subsidiary Control Group

Occurs when a parent company owns 80% or more of another company.
Example: You own 100% of Business A and 85% of Business B. These two are in a control group.

Brother-Sister Control Group

Occurs when five or fewer individuals, estates, or trusts own at least 80% of two or more businesses, and the same group owns more than 50% of the voting power or value of each.
Example: You and your spouse own 100% of Business A and 90% of Business B. These companies likely form a control group.

Why It Matters

If a control group exists, all companies in the group must be aggregated for retirement plan purposes. That includes:

  • Nondiscrimination testing
  • Coverage testing
  • Top-heavy testing

If one company offers a retirement plan and another doesn’t, the unbenefited employees must still be included in testing, and that can lead to compliance failure.

What Is an Affiliated Service Group?

An Affiliated Service Group (ASG) exists when businesses are linked through service relationships, even if common ownership is less than 80%.

There are two common ASG types:

A-Organization ASG

Occurs when a service organization (A) has an ownership interest in a second organization (B), and the second organization regularly performs services for A or is associated in performing services.

Example: A law firm owns 40% of an administrative support company that exclusively serves the law firm’s clients.

B-Organization ASG

Occurs when a company is economically dependent on providing services to a related business or group, even with no ownership.

Example: You don’t own the marketing firm that exclusively supports your accounting practice, but the same partners operate both companies and refer services back and forth. That may be a B-Organization ASG.

Common Compliance Pitfalls

Rachel and Alison describe a scenario we see all too often:

“A business owner acquires another company with 10 employees, but doesn’t bring them into the retirement plan. Now that owner controls both companies, and we have a control group.”

In this case, all employees across both companies must be included in nondiscrimination testing. If one company’s employees don’t receive benefits, your plan could fail.

It’s Murky and That’s the Point

There’s no single checklist to determine whether you’re in a control or affiliated group. The rules are complex, and IRS guidance continues to evolve.

“Technically, we don’t have final guidance on control groups. This has been a gray area for years,” says Alison Quesada.

Because of that, most businesses navigating these issues need support from:

  • A retirement plan consultant
  • An ERISA attorney
  • An experienced third-party administrator (TPA)

Know Before You Grow

Whether you’re acquiring another company, launching a side venture, or working with closely related service providers, the structure of your business relationships affects your plan.

Before making a move, work with your advisors to determine:

  • Does this create a Control Group or ASG?
  • Are we required to test employees together?
  • How will this impact compliance and contributions?
Reach out to our team to learn more

Earned vs. Passive Income: How It Affects Your Retirement Contributions

When planning for retirement, one of the biggest questions business owners ask is: How much can I contribute to my retirement plan? While it might seem like a simple question based on total earnings, the IRS sets strict rules about what type of income qualifies for retirement contributions. The key distinction? Only earned income counts.

What is Earned Income?

Earned income is money you make from actively working. It includes:

  • W-2 wages or salaries
  • Self-employment income
  • Commissions and bonuses

This income is subject to FICA and Medicare taxes, which is why the IRS allows it to be used as the basis for retirement plan contributions. Whether you’re contributing to a 401(k), Defined Benefit Plan, or pension plan, your contribution limits are based only on this type of income.

What is Passive Income?

Passive income is money that comes from investments or business activities that don’t require your direct involvement. Examples include:

  • Rental income
  • Interest and dividend income
  • Capital gains
  • Business income from an LLC or S-Corp (in some cases)

Because passive income isn’t tied to active work, it does not count when calculating retirement contributions. The IRS assumes that passive income sources, like rental properties or investments, will continue generating income in retirement, making additional tax-advantaged contributions unnecessary.

The K-1 Complexity

If you’re a business owner receiving income through a K-1, the distinction between earned and passive income can be more complicated.

A K-1 reports partnership income, deductions, and credits for tax purposes. While many K-1s only report passive income, others may include self-employment income—which is considered earned income and can be used to calculate retirement contributions. Look at Box 14 of your K-1 to see if it includes self-employment earnings. If it does, that portion of your income may qualify.

Why This Matters for Your Retirement Plan

Understanding the difference between earned and passive income is essential when designing a retirement strategy that maximizes tax-advantaged savings. Many business owners assume they can contribute based on total income, but only earned income applies.

Contribution limits can be complex, and every situation is different. Working with an advisor can help ensure you’re maximizing your ability to save for retirement based on all allowable income sources.

Want a quick estimate of how much you can contribute? Check out our calculator to see what your annual contribution limit might be based on your income and age.

An ancient Mirador on a hill with a clear view representing Transitioning a retirement plan to Mirador

Timely 401(k) & 403(b) Deposits: Why It Matters and How to Stay Compliant

One key responsibility for businesses offering 401(k) and 403(b) plans is ensuring employee contributions and loan repayments are deposited on time. The Department of Labor (DOL) and IRS closely monitor these transactions, and failing to deposit funds promptly can lead to compliance issues, penalties, and even plan disqualification.

How Soon Do Deposits Need to Be Made?

The general rule is that employee contributions and loan repayments must be deposited as soon as they can reasonably be separated from the company’s general assets. Here’s how that breaks down:

  • For plans with fewer than 100 participants: Deposits made within 7 business days after payroll are considered timely.
  • For plans with 100+ participants: Deposits must be made as soon as possible—often within a day or two after payroll.

Waiting too long—whether due to cash flow delays, payroll process issues, or simple oversight—can create an operational failure that requires correction and could trigger an audit.

What Happens If Deposits Are Late?

Late contributions are flagged on Form 5500, making them a potential red flag for the IRS and DOL. Late deposits can also result in:

  • Lost earnings for employees, which must be calculated and repaid.
  • Excise taxes and penalties on the employer.
  • Increased scrutiny in audits and possible legal risks from participants.

How to Fix Late Deposits

If you’ve missed a deposit deadline, there are ways to correct the issue:

  1. Self-Correction (SCP) – Identify the late deposits, calculate lost earnings, and document process improvements.
  2. Voluntary Correction (VCP) – Report the issue to the IRS and pay a fee to avoid heavier penalties.
  3. DOL Correction (VFCP) – Submit a correction to the DOL, which may waive excise taxes in some cases.

How to Prevent Late Deposits

✔ Set a deposit schedule – Align contributions with your payroll tax payment schedule.
✔ Designate a backup person – Ensure someone else knows the process if your payroll manager is unavailable.
✔ Use automated remittance – Work with a TPA, payroll provider, or financial advisor to streamline the process.

Keeping deposits timely isn’t just a compliance issue—it’s about protecting your employees’ retirement savings and keeping your plan running smoothly. Need guidance? Talk to your TPA or financial advisor to ensure your deposit process is on track.