Control Group and Covered Comp

[Guest abajeb]

We have a firm that sponsors a 401K and is 100% owned by a husband and wife. The wife works for the company, and takes a salary. The wife also has a side business that is totally unrelated to the firm sponsoring the plan. She has no other employees in this side business. Our question is this: MUST we include her earned income from the side business for plan purposes even though her side company hasn't adopted the plan? If the answer is no, my next question is this: can we? Would it require plan amendment, and can that amendment be retroactive to last year?

[Guest Pensions in Paradise]

Since the wife's sole proprietorship was not a participating employer (i.e., did not adopt the plan) in 2005, you CANNOT count her earned income for plan purposes for 2005 (assuming calendar year plan). Prospectively, the wife's sole proprietorship can adopt the plan and then you can count her earned income.