Control Group Relationship? Family Aggragation?

[Guest ButchElfers]

An individual owns 9% of a corporation (with her brother owning 82% and sister owning the other 9%). This business has a 401(k). She also owns 100% of a side business as a sole proprietor. She wants to establish a SEP IRA for the side business. Is there a rule that would link the two plans together because of Family aggragation or a control group relationship? Should she not establish the SEP IRA?

Thanks,

[Ron Snyder]

You have posted 12 times in 4 years? You seem not to be very involved in the business. If 5 or fewer owners have an overlapping controlling interest in more than one business, those businesses need to be consolidated for testing purposes.

You didn't mention an affiliated group relationship which would require 10% overlapping ownership and services provided back and forth between the entities.

Family aggregation refers to husband and wife aggregation along with aggregating interests of parents and children.

None of those seems to be applicable to the situation you mention.

Since you obviously are not familiar with these rules and are too lazy to look them up, I suggest that you ask the client's CPA to confirm that the companies are neither a controlled group nor an affiliated service group.

[Guest Pensions in Paradise]

vebaguru - wow, are you having a rough day or something? Regardless, your attack on the OP was unwarranted.

[Guest ButchElfers]

Man, Rough crowd. Sorry you are having such a bad day vega. I pray for you that today goes a little better. FYI I am a CFP and a CPA. The clients CPA was unsure of the answer. Control Group relationships are very technical and typically I let an ERISA attorney answer them. With 12 posts in 4 years, obviously I have other resources, besides a website where I get smart a** replies. I'll look elsewhere for support.

Thanks Pensions In Paradise for the recognition.

[Guest Boilerburm1]

I am hesitant to reply, since this is only my 10th post under this user name. Obviously, you shouldn't put much stock into what I say because it's impossible for me to be too involved in the business if I only have 10 posts. But I will give my thoughts anyway.

Unless there is a parent with ownership, the ownership of the brother and the sister are not aggregated for plan purposes. It appears to me that you are safe establishing the SEP for the side business.

[austin3515]

There's no attribution of ownership between siblings, erego (sp?) no one is treated as owning any more than direct interest. There's obviously no parent-sub relationship here, so that leave brother-sister: Because there is only one common owner, the identical interest test comes out to 9% (i.e., the sole common owner's lowest interest in either of the two businesses), and it must be at least 50% for a controlled group to exist. So no controlled group.

That is of course absent any highly unusual affilliated service group relationships. Assuming the business have no relationship at all (other than the fact that siblings own them), there's nothing to worry about there.

[Belgarath]

I would add one other caveat - particularly where there are family members involved. There are often options to purchase the stock, and watch out for this! This can create ownership where there's no other apparent attribution.

I fully agree with your practice of having an ERISA attorney make the determination. We always refer the clients to their attorney as well - it is just so easy to get burned on this subject.

[R. Butler]

You have posted 12 times in 4 years? You seem not to be very involved in the business. If 5 or fewer owners have an overlapping controlling interest in more than one business, those businesses need to be consolidated for testing purposes.

You didn't mention an affiliated group relationship which would require 10% overlapping ownership and services provided back and forth between the entities.

Family aggregation refers to husband and wife aggregation along with aggregating interests of parents and children.

None of those seems to be applicable to the situation you mention.

Since you obviously are not familiar with these rules and are too lazy to look them up, I suggest that you ask the client's CPA to confirm that the companies are neither a controlled group nor an affiliated service group.

As to the ASG issue, doesn't the 10% apply to B-orgs? Wouldn't any degree of ownership satisfy the ownership for an A-org? If its a management group situation, I don't see any ownership requirement.

[Guest ButchElfers]

Thanks to all for your comments and feedback. That is very helpful!