Solo 401(k) + Multiple Businesses = Control Group
A Solo 401(k) is a fantastic way for small business owners to save for retirement. With high contribution limits typically ten times those of an IRA, both tax-deferred and Roth savings features, and even the ability to borrow from the plan, it is no wonder the Solo 401(k) is the plan of choice for solopreneurs.
With a truly self-directed Solo 401(k) plan from Safeguard Advisors, you also get the ability to invest in alternative assets like real estate, private equity, cryptocurrency, and more.
If you have an owner-only business without qualifying non-owner employees, your business is eligible to sponsor a Solo 401(k).
But what if you have ownership interest in more than one business, and there are employees involved in some of those businesses? If the business are considered a controlled group, then you may not be eligible to sponsor a 401(k) without offering benefits to those employees. That would close the door on qualification for a Solo 401(k).
What are Controlled Groups?
The Revenue Act of 1964 established controlled group rules as part of the Internal Revenue Code. These rules that outline when multiple employers may be considered one for purposes of employee benefits.
The aim of controlled groups is to prevent business owners from giving themselves benefits not available to rank-and-file employees.
Businesses are considered part of a controlled group relationship under one of several structures:
- Parent-subsidiary
- Brother-sister
- Combination of parent-subsidiary and brother-sister
- Organizational attribution
- Family attribution
- Affiliated services
Parent-Subsidiary
If one company owns 80% or more of another company, a parent-subsidiary relationship exists. Ownership can be in the form of stock or membership units, and is tallied by vote or value.
If either of the businesses in this group has employees, then neither is eligible to sponsor a Solo 401(k).
Brother-Sister
A brother-sister grouping of businesses exists when two tests are met.
- Five or fewer common owners hold 80% or more of the ownership interest of each company.
- The same five or fewer common owners have effective control, which is more than 50% of the stock or voting rights.
For purposes of this test, owners can be individuals, estates, or trusts.
Combined Group
When three or more organizations have shared ownership, they can be viewed as a control group when the following two conditions exist:
- Each business belongs to either a parent-subsidiary or brother-sister group.
- At least one entity is the parent in a parent-subsidiary group and is also a member of the brother-sister group.
Organizational Attribution
An individual may be considered an owner of a business if they have indirect ownership through another entity such as a corporation or trust.
A person who owns at least 5% of a corporation or partnership is considered an owner of any entity where that corporation or partnership has a stake.
A trust beneficiary is considered an owner of an organization where the trust is an owner. They are considered to own the proportion of the trust’s share equal to their percentage of beneficial interest in the trust.
Family Attribution
Another indirect form of ownership occurs when certain family members have ownership in an organization. Per IRC section 1563 family attribution rules, ownership held a family member may be added to the direct ownership of an individual to determine total ownership for purposes of controlled group testing.
SpouseIn most cases a spouse’s ownership will be attributed.
There are exceptions per §1563(e)(5), discussed below.
ParentIs attributed the ownership of a child under age 21.
Is attributed the ownership of an adult child age 21 or older if the parent owns more than 50% of the organization.
ChildA child under age 21 is attributed the ownership of a parent.
An adult child age 21 or older is attributed a parent’s ownership if the adult child owns more than 50% of the business.
GrandparentIs attributed a grandchild’s ownership if the grandparent owns more than 50% of the company.GrandchildA grandchild is attributed a grandparent’s ownership if the grandchild owns more than 50% of the organization.SiblingsAre never attributed the ownership of other siblings
For purposes of the above calculations, any direct or indirect ownership in an organization is factored in.
Spousal Exceptions
In many cases, ownership held by spouses is combined. This often means that if you each have your own business, and one of you has employees, then both businesses are precluded from establishing a Solo 401(k).
There are exceptions that apply when the businesses can be distinctly separated by meeting the following criteria:
- A spouse has no direct ownership in the spouse’s business.
- A spouse is not employed by or hold a directing role in the spouse’s business, and does not participate in the management of the spouse’s company.
- The business does not receive 50% of more of its income from passive investments such as rents or royalties.
- A spouse’s stock is not subject to conditions that restrict the holder in favor the owning spouse or children under the age of 21.
When a spouse can be excluded from being considered an owner, that may allow one spouse to sponsor a Solo 401(k) in their owner-only business, even if the other spouse has a business with employees.
Affiliated Services
There are some cases where a set of organization may not be considered a controlled group based on parent-subsidiary or brother-sister criteria but are effectively a shared enterprise where all employees should be entitled to similar benefits.
This occurs when one company provides services to the other, both businesses provide services of the same type and share some ownership, or if one company is managing the other.
Ensuring Solo 401(k) Qualification
If you are considering a self-directed Solo 401(k), it is important to be aware of the rules surrounding controlled groups.
If you have an owner-only business and you and your spouse do not have ownership in other businesses with employees, then controlled group rules are not likely a concern.
If you are an entrepreneur with a stake in multiple businesses, then it will be wise to consult with your licensed tax or legal professionals to ensure your owner-only business is eligible to sponsor a Solo 401(k).
What our clients says about us
Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
