Three Types of Controlled Groups: CHART: SOLO 401K

December 14, 2016 | By Mark Nolan

Three Types of Controlled Groups

1. Parent-subsidiaryA parent-subsidiary controlled group exists when one or more chains of corporations are connected through stock ownership with a common parent corporation; and:

80% of the stock of each corporation, (except the common parent) is owned by one or more corporations in the group; and

Parent corporation must own 80% of at least one other corporation.

2. Brother-SisterA brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners own directly or indirectly a controlling interest of each group and have “effective control”.

3. Combined. A combination of: parent-subsidiary and brother-sisterA combined group consists of three or more organizations that are organized as follows:·

Each organization is a member of either a parent-subsidiary or brother-sister group; and

At least one corporation is the common parent of a parent-subsidiary; and is also a member of a brother-sister group.

Before opening a solo 401k plan, you need to make sure that any other business that you own that has full-time W-2 employees besides owners and their spouses do not fall under the controlled group rules as this will not qualify you to open a solo 401k for your other business (the one with no W-2 employees).

The controlled group rules will also preclude you from setting up separate plans for each business because if you own and operate more than one business both businesses will need to be covered by the same retirement plan.