Family Aggregation Rule

I have a client that is thinking of starting a 401k plan. 

Two brothers own 100% of Company A; 50% each. 

The parents (to both brothers) work for the brothers, receive W2 comp, own 0% of company B and want to make 401k contributions to the 401k plan of Company A.

In addition, the parents jointly own 100% of Company B; 50% each and do NOT want to offer a 401k to the employees of company B.  The two sons do not own any of company B and they do not work for Company B.

So the questions is If the parents contribute to the sons 401k plan as employees of company A and do not offer a plan to the employees of Company B is this is an issue? 

Under IRC sec. 1563(e)(5) you would generally have attribution between the spouses, so each spouse could be deemed to own 100% of company B. Then because parent would own more than 50%, could have attribution from adult children. So could be a controlled group. Your actual facts could be more complex or nuanced than you have described, but check out the Code sections I have cited and see how they might apply, Ahuntingus.

56 minutes ago, Luke Bailey said:

Under IRC sec. 1563(e)(5) you would generally have attribution between the spouses, so each spouse could be deemed to own 100% of company B. Then because parent would own more than 50%, could have attribution from adult children. So could be a controlled group. Your actual facts could be more complex or nuanced than you have described, but check out the Code sections I have cited and see how they might apply, Ahuntingus.

Huh?

I agree with Mike. 

22 hours ago, Mike Preston said:

Huh?

13 hours ago, Bill Presson said:

I agree with Mike. 

Yeah, you're right. Because neither H nor W own more than 50% of corporation A, the sons' stock is not attributed to them. Was late last night when I wrote otherwise.

4 hours ago, Luke Bailey said:

Yeah, you're right. Because neither H nor W own more than 50% of corporation A, the sons' stock is not attributed to them. Was late last night when I wrote otherwise.

I would agree that 0% is less than more than 50%.

13 hours ago, Mike Preston said:

I would agree that 0% is less than more than 50%.

Yes, Mike, but that's because you have the benefit of being an actuary.