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Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Controlled Groups and SIMPLE IRAs

(Posted November 18, 1999)

Question 35: A is 100% owner of two S corps and would like to establish SIMPLE IRAs for both. Can A defer up to $6,000 in each SIMPLE IRA? Also, would his dollar-for-dollar matching contribution be based on his combined income (up to maximum of $200,000) from both S corps?

Answer: Here's someone who wants to have his cake and eat it too! He wants to combine the businesses to compute compensation but split them for the deduction limits.

Alas, life doesn't work that way, and neither does the Internal Revenue Code.

The two corporations are a controlled group under IRC 1563 and 414(b). As such, they are treated as though they were a single business for purposes of 408(p), the SIMPLE rules. Thus, there would be one plan, covering employees of both businesses. A plan covering employees of only one business would violate 408(p)(4). There is a single $6,000 limit. Matches are based on aggregate compensation.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.