Parent-Subsidiary Controlled Group: This type occurs when a parent company owns at least 80% of one or more subsidiary companies. In this case, the parent company and its subsidiaries are considered a single controlled group, meaning that they must collectively comply with retirement plan regulations. Even if one subsidiary has no employees, the parent company’s ownership stake can impact the overall group’s eligibility for a Solo 401(k).
Brother-Sister Controlled Group: This type of controlled group exists when five or fewer individuals, estates or trusts have at least 80% ownership across two or more companies. Additionally, these same owners must have at least 50% identical ownership in each company. For example, if an individual owns 90% of Company A and 60% of Company B, these businesses may be classified as a brother-sister controlled group, which impacts retirement plan requirements.
Combined Controlled Group: A combined controlled group is a combination of a parent-subsidiary and brother-sister controlled group. For instance, if a parent company has at least 80% ownership in a subsidiary, and this subsidiary is also part of a brother-sister controlled group with another company, these companies form a combined controlled group. In this case, all businesses within the combined controlled group must adhere to unified retirement plan guidelines.
Affiliated Service Group: An affiliated service group consists of related organizations that provide services together, even if they do not have direct ownership stakes in each other. This type often applies to professional firms like accounting, law or medical practices that work closely with one another. If two businesses are considered an affiliated service group, they may be required to share retirement plans, impacting the Solo 401(k) setup.