SIMPLE IRA related entities
Jim and Tom are 50/50 partners in a business. They have a SIMPLE IRA.
They have formed a new business. In the new business, they each own 33 1/3% and there is a third partner that owns 33 1/3%.
I’m struggling to even ask intelligent questions on this one, so please feel free to answer questions that I’m not even asking, but should be asking.
Does this new firm have to also offer the same type of retirement plan? How do I learn more about this?
Permalink Submitted by Denise Appleby on Thu, 2008-09-25 05:34
It appears that a controlled group exist, based on the information you provided. Even if it does not, you would still need to check for affiliated service group.
If a controlled group or affiliated service group relationship exists, then employees of the second company would need to be covered under the SIMPLE IRA.
The definitions of each are at :
http://www.retirementdictionary.com/Controlled-group.htm
http://www.retirementdictionary.com/Affiliated-service-group.htm
The document (link at the bottom of the page) is very helpful, and can help you to make a definitive determination
Sorry I can’t give a better response. But it’s best not to guess or make any assumptions about ‘who is the employer’. Here’s the challenge. It is hard to make a determination without looking at the relationship between the companies from all angles. You want to be very careful with this one.
Unless I am sure I have all the facts, I usually refer the client to an ERISA attorney.
Permalink Submitted by Mister Anonymous on Mon, 2008-09-29 13:58
Denise,
Thanks for the response. As best as I can tell from further research, based upon the rules for a control group, this would not qualify.
Jim and Todd’s ownership in the second company would have to equal 80%. It only equals 66.66%.
Permalink Submitted by Denise Appleby on Mon, 2008-09-29 16:47
You are right. They have effective control, but do not have controlling interest. Now they would need to check for affiliated service (ASG) status. That’s usually more involved. You will need to look at the nature of the business and any services performed for one company by the other. [url=http://www.wisbar.org/AM/Template.cfm?Section=Home&CONTENTID=50861&TEMPL… help, along with the other reference
Permalink Submitted by BruceM on Sun, 2008-10-05 04:44
Denise
Perhaps I’m misreading, but it sounds like a new business entity is being formed…not two separate entities with shared ownership, thus I question whether the Parent-Sibling, Brother-Sister or Affiliated Service Group tests for determining the existance of a control group would even apply.
BruceM