Unrelated Employer
An unrelated employer is a business or organization that is not connected to another employer through common ownership or certain controlled-group or affiliated-service-group rules.
This distinction is important because retirement plan limits are sometimes applied separately for unrelated employers, but combined for related employers.
For example, a person may participate in:
- A 401(k) plan at one employer, and
- Another retirement plan sponsored by a completely separate employer.
If the employers are unrelated, the plans are generally treated separately for certain contribution and deduction purposes.
A common example is a married couple where:
- One spouse works for a corporation and participates in a 401(k) plan, and
- The other spouse is self-employed and establishes a Solo 401(k) plan.
The spouse’s participation in the 401(k) plan usually does not affect the self-employed spouse’s ability to establish and contribute to a separate retirement plan because the employers are unrelated.
Whether employers are considered related can depend on complicated ownership and service rules under the tax code. For that reason, taxpayers should consult a qualified tax or retirement plan professional when multiple businesses or family ownership interests are involved.