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401K Profit Share Rules for Two Closely Held Corporations

If one owner has two or more corporations, what rules are used to limit / calculate the 401K profit share allowed in each corporation? Assume a Safe Harbor 401k in each corporation.

I am fairly sure that the rules do not allow the owners to put profits into one corporation and pay out the profit share there exclusively. At the same time, one corporation might be profitable and the other not, so there has to be some flexibility in which corporation can have the larger profit share.

I am guessing that there must be some rule here that forces the common owner to treat the corporations and their employees as a combined entity, just for purposes of evaluating some 401K profit share fairness rules. But what are the details on that?

Reply to
W
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Not a tax question.

Reply to
Alan

So the IRS takes no interest in this question, and all of the enforcement would be through the Department of Labor?

Reply to
W

I disagree - it may not be directly related to how much tax is paid, but I think it fits within the overall intent of this NG, so I'll try to answer it.

Yes, there are rules that prohibit what you're referring to - I believe that these are part of the anti-discrimination rules. For the life of me, I cannot recall the code section by number. My recollection is that if there is shared common ownership or control (or they work so closely together in delivering services that its hard for one to function effectively without the other) then ALL the commonly owned companies MUST use the same plan and will get tested as if they were one company.

I believe that these rules start with IRC Sec. 414(b) & (c) (these apply to large and small businesses) and 401(m) & (o) (these apply mostly to small businesses and primarily to professional service businesses). I'm not certain that there isn't more - its been a long time since I had to look these up. You can search for "controlled and affiliated service group rules" and see what comes up.

There is an article at

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that does a good of outlining the issues. I cannot speak for the folks who own the site or the services they provide, but the article is pretty good. Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

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