I heard that I can file Form 5310 with the IRS to sign-off on a plan termination. How does this work?

When you terminate a plan you have the option to file form 5310. When this form is filed, you are basically asking the IRS to make a determination on the plan’s qualification status at the time of the plan’s termination. It does not say that the funding was accurate and it is not asking the IRS to sign off that all funding and compliance during the period the plan is open was approved.

In practice, it is not filed very often. This is for the following reasons:

1. They are expensive to file (often costing around $6k).
2. The IRS usually takes a year or so to process.
3. Many plans were drafted on pre-approved documents.
4. The IRS is not “certifying” that the plan operated and funded correctly.

In most situations, they are filed for companies with many employees (like 50+) or if there were many partners in a professional practice (like 20 physicians in a large practice). The reason is that there could be a problem with an employee and the IRS determination letter could be helpful. In addition, they might make more sense if you had a custom plan document or possibly a history of compliance issues with the plan.

Most solo practitioners would not pay to have it filed. If you want to discuss in more detail, just reach out to us.