ER makes a contribution for the Independent Contractor

Hi

Joe owns Company ABC

Mary is an IC and gets 1099 paid to Mary's Company XYZ from Joe's ABC

No relationship between Joe and Mary other than being siblings.

Mary has a 401k plan under XYZ and defers max - she gets a w-2 from her company XYZ

Joe has a 401k plan under ABC

Joe makes a contribution under ABC 401k plan for Mary and takes a deduction. Mary has no w-2 from ABC nor an employee.

How can this be corrected as Mary has w-2 income from ABC?

Thanks

Clearly the contribution can't be allocated to Mary since she isn't an employee. It would need to be treated as an employer contribution and should be allocated to the participants in the plan according to the plan's allocation formula.