controlled group

[Guest Jodi S.]

Individual owns 100% of S corporation. He also owns a sole proprietorship with no employees. The corporation has a 401(k) plan to which the 100% owner is not contributing. The owner would like to set up a solo - 401(k) for his sole proprietorship with the same benefits, rights and features and contribution rates, investments, etc. as the corporation's 401(k) plan. Is that possible? He doesn't take much of a salary from the corp. and has a big Schedule C net income, which is why I think he posed the question.

[jkdoll2]

Individual owns 100% of S corporation. He also owns a sole proprietorship with no employees. The corporation has a 401(k) plan to which the 100% owner is not contributing. The owner would like to set up a solo - 401(k) for his sole proprietorship with the same benefits, rights and features and contribution rates, investments, etc. as the corporation's 401(k) plan. Is that possible? He doesn't take much of a salary from the corp. and has a big Schedule C net income, which is why I think he posed the question.

As long as they pass testing together - you should have no problem. They would not pass coverage testing alone.

[jpod]

Why bother setting up a clone plan? Can't he as a sole proprietor sign on as a participating affiliated employer?

[Kimberly S]

Why bother setting up a clone plan? Can't he as a sole proprietor sign on as a participating affiliated employer?

That would save him money and trouble.

Of course, his purpose for the separate plan may be to grant himself a larger benefit than he gives the employees of the S corporation. Then, because they are a controlled group, he has to test them together anyway and will likely fail.

[jkdoll2]

Why bother setting up a clone plan? Can't he as a sole proprietor sign on as a participating affiliated employer?

That would save him money and trouble.

Of course, his purpose for the separate plan may be to grant himself a larger benefit than he gives the employees of the S corporation. Then, because they are a controlled group, he has to test them together anyway and will likely fail.

If he puts in the maximum 401(k) deferrals - he would have to have some kind of safe harbor to pass ADP testing - since you have to test them together.