The affiliated service group (ASG) rules are some of the most complex tax regulations business owners face when establishing a Solo 401(k). If you own or are affiliated with multiple businesses, these rules could require you to treat all companies as a single employer for retirement plan purposes.

Unlike the controlled group rules under Internal Revenue Code (IRC) Sections 414(b) and 414(c), which are based primarily on ownership and financial control, the affiliated service group rules expand the definition of a single employer to include service-based relationships.

This guide explains the ASG rules, how they interact with the controlled group rules, and what they mean for business owners looking to start or maintain a Solo 401(k).

Key Takeaways

  • Affiliated service group rules treat service-related companies as one employer, even without common ownership.
  • If you are part of an ASG, your plan may need to cover all employees across affiliated entities, meaning a Solo 401(k) might not qualify.
  • Misunderstanding or ignoring these rules can lead to plan disqualification and compliance penalties.

The Three Types of Affiliated Service Groups

There are three types of affiliated service groups:

1. A-Organization (A-Org)

An A-Org exists when an organization is connected to a First Service Organization (FSO). This occurs if the organization:

  • Is a partner or shareholder in the FSO (under IRC Section 318(a) constructive ownership rules), and
  • Regularly performs services for the FSO, or is regularly associated with the FSO in serving third-party clients.

Organizations in the following fields are automatically considered “service organizations”:

  • Health
  • Law
  • Engineering
  • Architecture
  • Accounting
  • Actuarial science
  • Performing arts
  • Consulting
  • Insurance

2. B-Organization (B-Org)

A B-Org structure involves a FSO and at least one “B organization.”

To qualify:

  • A significant portion of the B-Org’s business must be providing services for the FSO or related A-Orgs.
  • At least 10% of the B-Org must be owned by highly compensated employees of the FSO or A-Orgs.
  • The services provided must be of the same type historically performed by employees in the FSO’s industry.

3. Management Group

A management-type affiliated service group exists when:

  • An organization’s principal business is providing management services to another company on a continuous basis, and
  • The services rise to the level of regular and ongoing management functions.

Unlike A-Orgs and B-Orgs, common ownership is not required for a management ASG. Related parties are also included in the “single employer” group.

How Affiliated Service Group Rules Impact Solo 401(k) Plans

affiliated service group rules
Affiliated service group rules play a decisive role in determining whether a business qualifies for a Solo 401(k) or must adopt a broader ERISA 401(k) plan.

Affiliated service group rules play a decisive role in determining whether a business qualifies for a Solo 401(k) or must adopt a broader ERISA 401(k) plan. While the controlled group rules focus primarily on common ownership, ASG rules emphasize service-based relationships. This distinction is especially important for professionals who own or are affiliated with multiple companies, as their service ties may force them into a “single employer” structure under IRS rules.

Single Employer Treatment

When two or more companies form an affiliated service group, the IRS views them as a single employer for retirement plan purposes. This impacts every element of the plan, including how it is designed, who can participate, how contributions are calculated, and how nondiscrimination testing is applied. In other words, the rules prevent business owners from isolating one company for retirement benefits while excluding employees in related entities.

What this means for you: If you own or are affiliated with multiple businesses, the IRS may require you to treat them as one entity. This could eliminate your ability to set up a Solo 401(k) and require a broader ERISA 401(k) plan.

Nondiscrimination Testing

To ensure fairness, the IRS requires all 401(k) plans to undergo nondiscrimination testing. These tests, such as the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests, compare the benefits received by highly compensated employees (HCEs) and non-highly compensated employees (NHCEs). If a business is part of an ASG, all employees across the group must be included in these tests. Omitting workers from affiliated companies can lead to test failures, plan corrections, or even disqualification of the 401(k).

What this means for you: Even if you want to limit plan participation to a small group, the IRS requires you to test benefits against all employees in the affiliated service group. Missing employees in testing could result in plan disqualification.

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Eligibility and Coverage

Eligibility rules are another critical area where ASG membership matters. The IRS requires that employees from all entities in the group be offered the chance to participate in the plan. This creates a major limitation for business owners seeking a Solo 401(k), which is intended strictly for companies with no full-time employees other than the owner and spouse. If even one affiliated business has eligible employees, the plan must be converted into an ERISA 401(k) to remain compliant.

What this means for you: If any of your affiliated companies employ workers, you cannot maintain a Solo 401(k). Instead, you’ll need an ERISA 401(k) that includes those employees.

Contribution Limits

The IRS contribution limits also apply on a group-wide basis. If an employee works for multiple companies within the ASG, their compensation and contributions are aggregated across all entities. This ensures that the employee’s total contributions do not exceed the annual IRS limits, regardless of how many companies they work for within the group.

What this means for you: If you wear multiple hats across affiliated businesses, your contributions to each company’s plan are combined. This prevents exceeding the IRS’s annual contribution limits.

Example: ASG Rules in Practice

business

Consider a law firm (Company A) that owns 15% of an accounting firm (Company B). Both companies regularly provide services to one another, making them an A-Organization affiliated service group. Under the ASG rules:

  • 401(k) Coverage: Company A’s 401(k) must extend to employees of both firms.
  • Nondiscrimination Testing: ADP and ACP testing must include employees from both companies.
  • Contribution Limits: If an employee divides their work between the two firms, their contributions must be combined when applying IRS limits.

What this means for you: If your businesses are linked through service relationships, you’ll likely need an ERISA 401(k) instead of a Solo 401(k). This ensures all eligible employees across the affiliated companies receive fair retirement benefits.

Conclusion

For business owners with multiple affiliations, understanding the affiliated service group rules is critical. These rules can determine whether you’re eligible for a Solo 401(k) or whether you must adopt a broader ERISA 401(k) plan covering employees across all entities.

Because the rules are highly complex, it’s important to work with a retirement plan provider experienced in controlled group and affiliated service group compliance. This ensures your plan remains tax-efficient, IRS-compliant, and fair to all eligible employees.

Take the Next Step

At IRA Financial, we specialize in helping business owners navigate complex IRS rules like affiliated service groups and controlled groups. Our experts will:

  • Review your business structure for ASG or controlled group issues
  • Help you determine whether a Solo 401(k) or ERISA 401(k) is right for you
  • Ensure your plan is fully IRS-compliant and tax-efficient

👉 Schedule a free consultation to discuss your situation with a retirement specialist.
👉 Ready to move forward? Get started today and secure the right retirement plan for your business.

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Frequently Asked Questions

Can an ASG exist without common ownership?

Yes. Management ASGs do not require any ownership overlap, only service-based relationships.

Do ASG rules apply only to professional service companies?

Primarily, yes. Industries like law, accounting, consulting, and healthcare are most affected, but any company providing significant management or service relationships may qualify.

What happens if I set up a Solo 401(k) but I’m in an ASG?

Your plan could be disqualified. You would need to convert to an ERISA 401(k) and include all employees in affiliated entities.

How does the IRS determine if companies are part of an ASG?

The IRS applies ownership, service, and relationship tests under IRC Section 414(m) and related regulations.

Should I still consider a Solo 401(k) if I own multiple businesses?

Yes, but only if none of the affiliated businesses employ workers outside the ownership group. Otherwise, you’ll need a standard 401(k).