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richard

Multiple pension plans

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Consider an individual that owns, let's say, 5 businesses, and earns about $200,000 from each business. Each business has several employees.

The 5 businesses are NOT in the same controlled group, because he owns 50% of each business, and there are no common owners among the businesses. An attorney has advised him to this fact.

Also, assume that the businesses are completely separate.

So, it appears that he can have multiple defined benefit plans (or multiple defined contribution plans) covering each business. And a separate 415 limit would apply for each business.

Therefore, he will be able to contribute either $150,000 (5 x $30,000) to defined contribution plans, or probably around $250,000 to five defined benefit plans.

Have I missed something?

I suspect that he has (either by design or by fortune) structured his ownership very favorably!

Again, have I missed something?

(By the way, he be be forwarned that ANY changes in the ownership could jeopardize this nice arrangement.)

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Guest datalife

An expert in this topic, I'm not. However, if this owner has rights to purchase more than 50%, even, for example on the death of another owner, it is my understanding that it is deemed that your client has a greater than 50% ownership in the corporation. Consider it like constructive ownership. I asked the IRS a few years back, and this is the position they took.

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initial reaction: "if it looks like a fish, swims like a fish, smells like a fish ... do I want it in my house - especially as it gets older?"

on subsequent thoughts: Assuming there is NO chance of these being considered part of a controlled group or part of an affiliated service group, let's look at the overall picture.

In order to get a larger contribution for herself, this individual has created 5 or 6 separate corporations - each of which is subject to separate corporate income taxes and fees beginning at lowest levels for state (in California, there is a minimum $800 tax even if there is no net income)and federal purposes;

in each of the corporatons, the corporation and the individual pay full bore on the social security taxes (12.4%)up to the wage base (albeit she can get a refund - of a portion of the employee portion of the tax - if she waits long enough);

the companies maintain four additional sets of plans, with their related expenses;

and when she wants to withdraw the monies, she will be faced with an excise tax on the large acumulation.

in addition to which, this is surely going to attract an IRS audit on a regular basis.

Does it really make sense?

[This message has been edited by Larry M (edited 09-20-98).]

[This message has been edited by Larry M (edited 09-20-98).]

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