How Far Back Can the IRS Audit a 401(k) Plan?

Understanding IRS Audits for 401(k) Plans

The Internal Revenue Service (IRS) has the authority to audit retirement plans, including 401(k) plans, to ensure compliance with tax laws and regulations. An audit involves a review of plan records and financial statements to verify the accuracy of reported information and adherence to plan provisions.

Statute of Limitations for IRS Audits

Generally, the IRS can audit 401(k) plan returns filed within the last three years. However, if the IRS identifies a substantial error or omission, it may extend the audit period to include additional years, typically not exceeding six years.

Required Recordkeeping for 401(k) Plans

As a plan sponsor, it is crucial to maintain accurate and complete records related to your 401(k) plan. These records should include:

  • Plan document and trust agreement
  • Amendments and restatements
  • Determination and approval letters
  • Investment statements and account balances
  • Participant census data and contribution information
  • Loan documents and compensation data
  • Participant statements and notices

Consequences of an IRS Audit

If the IRS conducts an audit of your 401(k) plan and discovers discrepancies or non-compliance, it may impose penalties and corrective actions. These may include:

  • Disqualification of the plan, resulting in the loss of tax-favored status
  • Repayment of taxes and penalties on improperly distributed funds
  • Requirement to amend the plan document to correct errors
  • Fiduciary liability for plan sponsors and trustees

Preparing for an IRS Audit

To minimize the risk of an IRS audit and ensure a smooth audit process, plan sponsors should:

  • Maintain meticulous records and documentation
  • Understand the plan document and its provisions
  • Seek professional guidance from legal and financial advisors
  • Respond promptly to IRS inquiries and requests for information

Additional Resources

For further information on IRS audits and recordkeeping requirements for 401(k) plans, refer to the following resources:

How Long Does the IRS have to Audit Solo 401(k) Plans?


What triggers a 401k audit?

Participant or employee complaints about the benefit plan. Late or incomplete filing of the Form 5500. Alternative investments in the plan. Improper or excessive fees paid to service providers.

Can the IRS go back more than 10 years?

In some cases, the IRS can take more than 10 years to collect tax debts. This happens when an event causes the clock to stop ticking on the statute of limitations and the deadline gets extended. This is called tolling the statute of limitations.

What is the 80-120 rule for 401k audit?

The “80-120 Participant Rule” allows plans with between 80 and 120 participants at the beginning of the plan year to file the Form 5500 in the same category (“large plan” or “small plan”) as the prior year filing.

How often are 401k plans audited?

When you have more than 120 eligible employees, you’ll always need an annual audit. If you’re unsure whether your company needs a 401(k) audit, reach out to an accounting firm specializing in 401(k) audits for more information.

When should a 401k plan be audited?

Also known as ERISA, Employee Retirement Income Security Act, 401k audits are necessary when you have over a certain number of employees actively participating in your company’s retirement plan programs. When Must a 401k Plan Be Audited? 401 (k) audits can be stressful for employers. Even hearing the word “audit” can be enough to induce panic.

What happens if a 401(k) is audited?

If a 401 (k) audit reveals that the plan is not operating according to the plan document specifications, the sponsor and plan have compliance issues. These must be addressed, and the plan must be brought into compliance with the DOL and IRS regulations.

Do you need a 401(k) plan audit?

As an employer offering a 401 (k) plan, you may find your plan is required to undergo an annual audit. A 401 (k) plan audit refers to an official inspection of the financial standing of a 401 (k) plan by a third-party accounting firm. These audits can be complex and time-consuming. So, it’s important to properly prepare for them.

How much does a 401(k) audit cost?

The cost of a 401 (k) audit is difficult to predict since it depends largely on the size of the 401 (k) plan being audited and the complexities of the situation. The third-party administrator you hire should assess the situation and what it requires and provide a quote that’s commensurate with the job.

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