Multiple Businesses

Hoping someone can help me determine if I have a controlled group issue between multiple businesses my wife and I fully or partially own.  Businesses and ownership is as follows:

1. My wife owns 100% of a S-corporation that sponsors a 401K plan with safe harbor provisions in place.  This business and plan have been active for many years.
2. I am a sole-proprietor and have been funding an Solo(K) for several years - but my total annual contributions have always been below the employee-only contribution limit.
3. I have an associate that also operates his own sole-proprietorship.  That is his only business that I'm aware he owns and I'm not certain what he's been doing in terms of retirement plans.
4. I am forming an S-corporation with the associate and each will own 50% to start.  The s-corp will pay joint administrative and office expenses and will have one employee.  We will still own and operate our own sole-props and will only reimburse the S-corp for our pro-rata share of expenses.  My associate and I will not be employees of the s-corp, but will be officers and directors.  We would like to offer a retirement plan to the employee - but ideally a SIMPLE or SEP plan.

Considering the above, my questions are:

1. Is my sole-prop technically a controlled group with my wife's corporation?  Although I think answer to that question is probably yes, I am hoping that I'm OK since I have not been contributing over what the maximum of would have been allowed had I been a participant in her safe harbor plan.  However, going forward should I integrate my plan into her plan or am I OK keeping it separate?  FWIW, I am utilizing a brokerage account for my plan while there is no brokerage account option in her plan so I hope I can continue to operate in that same manner.  Also, if I am a controlled group I assume I cannot (or at least should not) try to operate a different type of retirement plan such as a SEP for my sole-prop?
2. Will the newly formed s-corporation be considered a controlled group with my sole-prop?  And taking it a step further, if that is the case would it technically be a controlled group under my wife's corporation as well (assuming my sole-prop is a controlled group under her s-corporation)?  If those are both YES I assume I would have to offer the employee coverage under the same 401K plan and likely change my Solo(K) to a regular 401K.  However, I am hoping that this isn't the case since I only own 50% of the new corporation.  As mentioned above, we would like cover the employee via a SIMPLE or SEP plan.
3. Will the new s-corporation and my partners sole-prop be considered a controlled group?  If that is the case I would think that he could participate in the 401K plan if he desired.  However, he probably should not operate a different retirement plan for himself.  Once again, I am thinking that because he only owns 50% of the corporation that he is not in a controlled group.

So, my hope is that the only controlled group in the above is my sole-prop and my wife's s-corp and that I will be OK since I would have been operating within the parameters of her plan had I been participating in it.  However, any insight into any of the above would be greatly appreciated.

Thank-you!

Matt

Just realized there is a specific Multi-Employer Plan section where this probably should have been posted.  However, since there doesn't seem to be near as much action in that section hoping it's OK to leave it here...

Thanks!

You and your spouse would generally be considered to own each others' ownership interest, unless you meet the requirements for the spousal non-involvement exception. If you do not meet the requirements for the exemption then a controlled group will exist.

If you have a child under age 21 together, then a controlled group exists regardless.

For the new S-corp, there would not be a controlled group with your sole prop. However, if your business is a service organization, then there might be an affiliated service group, which has a similar effect to being part of a controlled group. The rules around affiliated service group status are complex and highly fact-dependent. You might want to hire an attorney who specializes in these sorts of findings to analyze your situation and give you a determination.

Actually, I lied in my last paragraph. There will be a controlled group with your sole prop and the new S-corp, but solely for purposes of the 415 annual additions limit, which defines a controlled group as 50% common ownership instead of the 80% that applies for other purposes. If you are not going to be participating in the S-corp's retirement plan, then this is a non-issue.

A multiemployer plan is a particular type of plan that is sponsored generally by a union. That is completely different than a multiple employer plan, which is what you would have if a plan were adopted by more than one unrelated employer. Of course, if they are part of a controlled group or affiliated service group, then a single employer plan can cover multiple employers. What do you mean the terminology is confusing, it makes perfect sense... 

On 1/10/2021 at 1:01 PM, MHANSON said:

• My wife owns 100% of a S-corporation that sponsors a 401K plan with safe harbor provisions in place.  This business and plan have been active for many years.
• I am a sole-proprietor and have been funding an Solo(K) for several years - but my total annual contributions have always been below the employee-only contribution limit.

There is not any spousal attribution if the spouse does not have an ownership interest in the other entity, the spouse does not "participate" in any way in the other entity, and no more than 50% of the other entities is passive income. Based solely on the above, this is not a controlled group. As C.B. points out, if there is child under the age of 21, then the 100% interest of each parent in their respective companies is attributed to the child. There would now be 2 companies under common control of the child, and therefore, a controlled group. 

Just now, FORMER ESQ. said:

There is not any spousal attribution if the spouse does not have an ownership interest in the other entity, the spouse does not "participate" in any way in the other entity, and no more than 50% of the other entities is passive income. Based solely on the above, this is not a controlled group. As C.B. points out, if there is child under the age of 21, then the 100% interest of each parent in their respective companies is attributed to the child. There would now be 2 companies under common control of the child, and therefore, a controlled group. 

 

 

 

Also, I have not looked at the rest of your question beyond the first two bullet points, so I am reserving any judgement on that.

Thank-you for the responses and sorry it took some time for me to respond. 

My wife and I do have children under 21 years of age so I guess that makes her s-corp and my sole-prop a controlled group?  I think it's bizarre that having a child under 21 makes a difference, but there's a lot of stuff the government does that I don't get so I digress. 

The sole purpose of the new s-corp is to provide administrative support to my sole-prop and my associates separate sole-prop, so I am thinking that would be considered a service organization. 

And if both of the above are accurate I suppose that all four of the businesses are going to be considered a controlled group.  In that case I suppose we should probably just integrate all of our retirement plans into the 401K plan at my wife's business.  Am I on base here or not really?

Thank-you,

Matt