I have a small business (LLC) with my wife. I also work full time for a company and am enrolled in a 401(k) plan. Am I still eligible to make contributions to an individual 401(k) from earnings of my part-time LLC?
The overriding rule for total contributions to defined-contribution plans, such as a 401(k), for 2014 is $52,000, or $57,500 for those older than 50. This is made up of your contribution through salary deferral and employer match or profit sharing contributions.
Now, for your contribution, you can save $17,500 to one 401(k) plan or divide it among several, as long as you do not exceed that limit. We recommend you save enough into your employer’s 401(k) plan to get the company’s match. Then save the rest to your solo 401(k) through the LLC. Just don’t make the mistake of thinking you can save $17,500 times two, because you will owe taxes, interest and penalties to the IRS.
Now, after you have saved the $17,500 through your employee contributions, the LLC can make a profit sharing contribution up to the max of $52,000. The company also does not actually have to make profits to make a profit-sharing contribution. However, the maximum contribution is 25% of the employee’s compensation.
Gentlemen, I’d like to get your opinions on Enerplus Corp. and Micron Technology, Inc. Thank you for your time.
Enerplus Corp. (NYSE: ERF) is a North American crude oil and natural gas exploration company. They are a smaller company, with just under $5 billion in market cap. Comparatively, their competition averages $20 billion in market capitalization. The company is expected to grow earnings at 57.5%; however, we have a hard time to believing a number that large, despite having a forward price-to-earnings ratio of 19.42. The company pays a dividend of 4.21%, but it is declining. Overall, this company is too speculative for us. It does not meet our criteria for financial strength; therefore, we do not recommend investing in Enerplus.
Micron Technology, Inc. (NASDAQ: MU) is a manufacturer of computer microchips. It has an attractive valuation at 13 times earnings%, but the company pays no dividend. The company’s return on equity is 41.7%. However, the company has a capital structure issue that makes us pause. For the last few years, the company has issued some debt that has a convertible feature, which has been diluting the company’s shares. Bondholders are converting to equity holders, so as an equity holder, you own less and less of the company’s profits. The company does not meet our investment criteria, so we do not recommend it for purchase. If you hold Micron Technology, you may be OK to hold it.
What do you think of an investment in Morningstar? I’ve noticed all the big names in financial information companies are publicly traded: Thomson Reuters, FactSet Research, and Envestnet. Do any of these make good investments?
Morningstar Inc. (NASDAQ: MORN), Thomson Reuters Corp. (NYSE: TRI), Envestnet, Inc. (NYSE: ENV) and FactSet Research Systems Inc. (NYSE: FDS) all have a good grip on their investments. Many financial institutions, including us, purchase institutional research from them. Of the four, only Thomson Reuters has any debt. Most of them are expected to grow 10% to 15%, but the smallest company, Envestnet, is expected to grow at 26%.
Of the four, we prefer Morningstar. It has a $3 billion market cap with a P/E of 24 and a PEG ratio of 1.6. The others have PEGs around 2.
Yelp is expected to beat revenue estimates. Is this one worthy of investment?
Yelp is a crowd-sourced online review service that operates through a website and mobile app. They boast more than 36 million reviews. However, like most social media companies, they have no earnings. While the company is expected to grow at 45%, they are still trying to figure out how to capitalize on the data and their users. We recommend avoiding this stock. If you are interested in technology companies, we recommend high quality companies like International Business Machines (NYSE: IBM), Microsoft Corp. (NASDAQ: MSFT), Qualcomm inc. (NASDAQ: QCOM) or Intel Corp. (NASDAQ: INTC).
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