Can a Trust Sponsor a 401(k) Plan?

[tbp]

If the owner of a corporation that sponsors a 401(k) un-incorporates and assigns the assets of the corporation to a trust administered by him, can he still maintain the 401(k)?

[Lou S.]

I'm a little confused by your description does the trust own the shares of the company (or 100% interest in an unincorporated business)?

I assume the original owner is the beneficial owner of the trust and is carrying on the same business, no?

If so you might have an EIN change along the way but essentially you have the same ownership structure for pension purposes when you look through the trust. That is he went from owning 100% of the business as the shareholder of the company to the 100% owner of the business which he now essentially owns through his trust.

[tbp]

The trust would own the unincorporated business and yes, the owner is carrying on the same business.

[Mike Preston]

Boy, there must be some special reason he wants to operate a business through a trust. It was my understanding that a trust in that circumstance would pay much higher taxes. Guy going to jail?

[Peter Gulia]

If the trust (really, the trustee) has at least one employee (including a person who is a deemed employee under IRC 401©) who might become a participant, I'm unaware of any special reason why such an employer could not establish a retirement plan.

There can be non-nefarious reasons why a trust creator might want a trustee to operate a business.

If the corporation has S corporation flow-through treatment and the trust would be a grantor trust that has the trust's income taxed to the grantor, it's possible that the Federal income tax treatment might not be too much different.

tbp, consider being extra careful about the scope of your advice or service.