Aspect managing your money so youll be able to become a better investor both when it comes to retirement investing and what i call your discretionary mad money profile. Which is a big reason why i wrote get rich carefully to begin with. Even if you dont own individual stocks directly, you probably have some kind of exposure to the stock market. A 401 k plan where you keep the bulk of your retirement funds, which is i want to take a moment to talk about retirement. For those of you living in a cave 401 k plans are the main way americans save. Theyre offered by your employer and theyre among the great deferred tax investment vehicles out there, along with the i. R. A. Im talking about the individual requirement account. Wait. For those of you who are about to fall asleep or change the channel because the whole idea of saving for retirement puts you to sleep, hear me out. Because you need to know this stuff. Im going to tell you some things that you wont hear from the socalled experts. At this point, its pretty much become conventional wisdom that you have to invest in your 401 k . That only an idiot would not contribute to a 401 k plan. A lot of experts will even tell you to max out your 401 k if you make enough money for that to be feasible. The maximum contribution tends to be going up over time. 17,25, 18,000 in 2015. Thats a big chunk of change. They come from your pretax income. However, i am not one of the people who thinks you should max out your 401 k . Im not someone who is going to sing the praises of the 401 k and tell you its the key to your financial salvation. Because the truth is 401 k plans can be a real mixed bag. [ booing ] with a couple of really great features and a lot of bad ones too. And those bad features will eat away at your returns year after year, sometimes in fees that are almost totally hidden from you that are actually quite upsetting to me. Let me lay out the good, the bad and the ugly of 401 k plans, and then ill tell you whether it makes sense to contribute put that cash to better use first the good. The best thing about a 401 k is vehicle. You pay no taxes on what you put in. You never pay a penny of Capital Gains taxes on the profits you make in your 401 k which allows your money to compound year after year. Compounding just being fantastic. Decade after decade. Totally taxfree until you decide to start making withdrawals. Regular viewers of this show and readers of my books know im a huge believer in the power of compounding. Let me give you an example here. Suppose youre 30 years old and start investing 5,000 a year to your 401 k . Remember, youre not paying any income tax on that pretax income. If you choose your investments wisely, you should be able to generate perhaps as much as 7 return on average. Over the course of the next 30 years youll be contributing 150,000 to your 401 k plan. Because that money is able to compound year after year without any Capital Gains taxes, by the time youre 60, that 5,000 preyear tax income, that could if you had to pay taxes on dividends and Capital Gains, it would be a lot lower, perhaps as much as 110,000 lower. Thats how important compounding is. And avoiding, well, lets say the tax deferred nature of the thing. You only have to pay taxes on your 401 k money once. Thats when you decide to withdraw it. Thats when taxes ordinary income and since youll likely be retired then, most of you will end up paying a lower rate than if you had been taxed on the higher rate levels. So thats one major reason to like 401 k plans. The second, many, but not all employers will match or partially match your 401 k contributions. In other words, for every dollar you invest in your 401 k plan, your employer might throw in 50 cents up to a certain point that is free money. And you must almost never want to walk away from free money. Especially again, when its also untaxed. But if you dont get free money from your employer for contributing to a 401 k , i think its a much less compelling option, frankly. As i said before, there are a plan that can be really bad. Which is why if again you dont get a match from your employer, i believe its a better idea to save for retirement via the individual requirement account, or ira. The same exact tax deferred status as a 401 k . You can only contribute 5500 or 65 if youre over 50. When you change jobs, you can roll over all the money in your 401 k to an ira. Thats exactly what you should do every time you switch employers or find yourself out of work. Why do i think an ira is a better option . 401 k plans vary widely from company to company. Some give you terrific range of choices and even let you pick individual stocks. But many more Companies Give you a 401 k plan with limited options. Sometimes you only get to choose between a dozen, maybe a couple dozen at most different mutual funds. So for those of you who cant pick your own stocks this your 401 k , my number one rule is before you contribute money to your 401 k plan, you have to make sure it gives you the option to put your cash into something that is actually worth investing in. Ill make this very simple. In a 401 k , then you want a nice low expense index fund that mimics the s p 500. However, if your 401 k doesnt even offer that, shame on your company. Then go with the selfdirected ira from the full Service Discount program. I talk about fidelity so you can have control over your money. One more negative. Within a 401 k when you invest in a mutual fund you, have you to pay that mutual funds fees. This is really important. But your 401 k administrator, the company youre the people your employer hires to run these plans, they will also charge fees. [ booing ] meaning that all the money 401 k saves you on taxes, a great deal of that can actually be called back by these fees. You ever looked at your statement and wondered why the heck your 401 k holdings arent increasing in value like they should be, fees are probably the reason. So where does all this leave you . Here is my bottom line on retirement investing. The company you work for offers an employee match, you want to that match is maxed out. No reason to pass up on free money. After that put any additional Retirement Savings into an ira. If there is no employer match or an employer match but your 401 k doesnt give you any options to invest, in you would do better to skip the 401 k and go straight to an ira immediately. Deborah in california, deborah . Caller hi, jim. Thanks for taking my call. Quite welcome. Caller i have a twopart question regarding the value of listening to a companys earnings conference calls. Okay. Caller the first part is how can we decide what we want to do, in other words, what action we want to take based on the Earnings Report since the stock frequently will behave in a contradictory fashion to the report. For example, company can report good earnings, but guide lower on the revenue and earnings going forward, and the stock will go up. It should go down, right . The second part of my question is im on the west coast. So the calls frequently are at 7 00 and 8 00 a. M. Eastern time. So for me, the value of listening to the call is diminished because im not going to get up at 4 00 or 5 00 a. M. Right. To listen to it. So im not really going to take any action on that. Here is the solution to, this deborah. You have no gun to your head, unlike the hedge funds. You can listen at your leisure. Im not trying to get anybody into a quarter to buy a stock ahead of a quarter if you can avoid it. What you want to do is take a longer tomorrow view in the comfort of your home, without any noise. Go listen to the call or read it. Go to yahoo finance. Get some of the research, street. Com, cnbc, get some research. Match the expectations with what was said. Take a longer term view. Thats the advantage of the individual investor. Doug in nevada, doug . Caller booyah, mr. K. Okay. Caller yeah, my question is i have a 401 that is fairly substantial. Would it be advisable for me to change that to a selfdirected ira . Okay. Well, what matters is the match. If you have the employers is matching, no. You want to get the max match, so to speak. And after that, yes. But if its just six and a half or onehalf dozen of the other and the funds arent that good that youre allowed to be in your 401 k , then yes, i want you to choose the selfdirected ira. When it comes to retirement, if your company matches the contribution to 401 k , max that out. Thats really important. But if you dont get a match, you dont have investful option, go straight to the ira. Your diploma, so now what . Dont miss my Investment Advice for recent grads. Ill put your money behind the next best thing. Plus, there are many roads to a healthy retirement. Lets chart your coast. Stick with cramer. Dont miss a second of mad money. Follow jimcramer on twitter. Have a question . Tweet cramer, mad tweets. Send an email at cnbc. Com or give us a call at 1800743cnbc. Miss something . Head to madmoney. Cnbc. Com. Im going to share a photo of my eggo waffle when it pops up. Thats so interesting honey because im going to share leggo my eggo leggo my eggo answering machine hey leave a message. Hi, i know youre there, cause i can see you. Im calling you to tell you to leggo my eggo anncr some things are too delicious to share. Golden crispy, warm and fluffy eggo waffles. Leggo my eggo. I take prilosec otc each morning for my frequent heartburn because you cant beat zero heartburn ahhh the sweet taste of victory prilosec otc. One pill each morning. 24 hours. Zero heartburn. Your heart loves omega3s. But the omega3s in fish oil differ from unlike fish oil, megared is easily absorbed by your body. Megared. The difference is easy to absorb. When cigarette cravings hit, all i can think about is getting relief. Only nicorette mini has a patented fastdissolving formula. It starts to relieve sudden cravings fast. I never know when ill need relief. Thats why i only choose nicorette mini. Happy anniversary dinner, darlin can this much love be cleaned by a little bit of dawn ultra . Oh yeah. One bottle has the grease cleaning power of two bottles of this bargain brand. A drop of dawn and grease is gone. Theres a more enjoyable way to get your fiber. Try phillips fiber good gummies plus energy support. Its a new fiber supplement that helps support regularity and includes b vitamins to help convert food to energy. Mmmmm, these are good nice work, phillips the tasty side of fiber, booyah if everyone in this country went insane and decided to turn american into cramerican with me as your king or grand poohbah, you Better Believe id be making changes and pronto. Because this is a show about money, im going to stick to financial element to the regime. Really teach our young people about how to handle money. And im talking early, too. Not just college. Would it be so crazy if you had to take a class in personal finance before you graduate from high school . I think it should be mandatory. Like the Awkward Health classes. Sadly, im nobodys dictator. I dont have any influence over educational policy. But i do control about what we talk about on the show. Can i take a moment to speak some words that we all believe but very rarely get to say in conversation . Look, money is important. Its really important. And caring about the state of your finances does not make you some kind of superficial bourgeois monster. Lets say you have a really lousy credit score and you want to get married. Congratulations. You just inflicted your horrible credit on your new spouse. Now neither you nor your partner will be able to qualify future a loan to buy a home or just get a darn credit card. They say Money Matters in life wisdom at best since being broke is indeed a major buzz kill since i know firsthand from the time i spent living in my 1978 ford fairmont. I sure wish i had an expert to guide me through all this stuff way back then. So let me answer one of the most important questions out there. What the heck should young people do with their money . First and foremost and always, you need to invest. Thats the only way youre going to be able to achieve financial freedom. By freedom, what i mean is living a life where youre not totally 100 dependent on your paycheck. Im always thrilled when i see members of the younger demographic who are taking an own money. Too many people start saving and investing way too late. That makes their lives a lot more difficult than they need to be. But i also know many young people feel like they have all the time in the world. Many more start investing before theyre truly ready when they are in fact Better Things for them to be doing stuff with their money. This im going to give you three lessons, and a caveat for all those who are recently out of college. Lets start with the caveat. Before you can start investigating, you need to pay off your Credit Card Debt. This is something i mentioned before. But its especially true for younger people, particularly since Credit Card Companies have gotten really aggressive about offering credit to college students. No matter how much money you rack up in the stock market, if youre carrying a balance on your credit cards, its going to eat into your returns. I know this myself firsthand. And longterm the interest on the credit cards will probably be greater than the profits you can make from investing. At least on a percentage basis. So just pay your darn credit card balance in full every month. Automate it with your credit card company. Youll be tempted not to. I cant defeat that Credit Card Debt with no matter how many great stock ideas i have on the show. Three lessons for young investors. First, this is really for all young people who recently graduate and actually for everyone out there, regardless of age and edge indication level. You need the save money. But i recognize not everyone has an inherent predisposition to we cant all be natural cheapskates. And i acknowledge that telling you to save over and over again wont necessarily do any good. However, the stock market is a great way the trick yourself into saving a part of your paycheck that you might otherwise spend. Investing in stocks can actually be a lot of fun. We tried that on the show. We try to do some entertainment within the teaching, whereas leaving money in a savings account or sticking it in a deposit feels kind of joyless for a lot of people. Not to mention that the returns soso small that theyre yes, indeed, ill use the word meaningless. If you investigate your snaifgs the market it will be a lot easier to resist the temptation to spend that money on things that you might not need. Because it will be sitting in stocks that you like. Youll have to sell the stocks to get your money become. And there is a natural predilection to not sell once you buy. Not only is this a terrific way to trick yourself into saving, but also the added advantage of being the smartest place to put your money. Traditional saving vehicles like the rates . Check them every week, cds, they give you hardly any return at all. Its a waste when the ash could be making you a lot more money by owning stocks in a brokerage account and working with your money. Get your hands dirty with your money. Second lesson for young investors, this is a much more targeted piece of advice. While youre still young, you can afford to take a lot more risk than an old fogy like myself. When your in your 20ious can get away with more reckless where the potential upside could be huge. But so is the potential downside. Or playing with options and generally being a lot more aggressive with your money. Why is that . Its not because young people are naturally better speculators. Not at all. Its simply because when you make a mistake in your 20s with your money, you have the whole rest of your life to fix it. You can afford to buy more high risk stocks and end up losing your money when youre young because you have 49 years to earn back your losses. So you have to take the risks. The closer you get to retirement the more conservative your investing strategy has to be. More bonds, fewer speculative stocks trading in the single digits. If youre in your 20s, you should invest like a young person, not an old person. Forget about bonds there is no reason for someone in their 20s to have Bond Exposure when that money could be invested in stocks which will make you a higher return year after year. Young people, i want you to take this advice to heart. Especially because i suspect that the recent College Grads most likely to invest in the market are also the ones that are the most responsible, the most prudent about their money. Are and prudence is great when putting together a budget to live within your means or deciding how much of your paycheck to save every month. But for young investors being too prudent is actually being reckless. 20somethings, live a little, at least if your sock portfolio. Take some risks. Play around with some speculative names. Maybe Biotech Companies with a lot of potential. Even if they blow up on you and youve got your whole life to make that money back. Final lesson for young investors, its never too early to start investing for retirement. Use your 401 k if your job has one. Especially put some money in a roth ira which is ideal for young investors. More on that later. For young people just out of college, investing is a great way to trick yourself into saving money you. Might otherwise spend that money. Beyond that, remember that when youre young, you can afford to take a lot more risks in your portfolio. And its never too soon to start contributing to your 401 k or ira. Especially if that ira is a roth. Lets go to mike in tennessee. Mike, mike, mike . Caller hey, jim. How you doing . I love your show. Thank you. Caller we watch it all the time. Thank you. Caller my question is a few episodes ago, you said that you did not like buying a stock if the peg ratio is above 2. Right. Caller im wondering whether or not you use peg ratios as a sell signal . And if you do, how high will you let it go before you pull the more than two times the growth rate, i do get nervous. Now there are some stocks that dont trade on earnings. And youve got to be careful, like a cold stock there is a bunch of cold stocks. But the typical stock, if it trades for lower, great. Lower than two times at that rate of growth, im fine with it. But it is a red flag once it gets higher. A penny saved is a penny earned. Investing is a great way to trick yourself intoo saving money. Its never too soon to contribute to your ira or your 401 k . I have a lot more tonight on this deep dive into the pros and cons of index funds. Hey, which way do i come out . Dont miss my case. And income is a huge factor in retirement. Im going to push you in that direction right here right now. Plus, i would wouldnt wish student debt on my worst enemy. Ill help protect your family from this expensive burden. Dont go away. Stay with cramer. It just kinda like. Wiped everything clean. 6x cleaning 6x whitening i actually really like the 2 steps. Step 1, cleans step 2, whitens. Every time i use this together, it felt like. Leaving the dentist office. Crest hd. 6x cleaning, 6x whitening i would switch to crest hd over what i was using before. A heart attack doesnt care if you run everyday, or if youre young or old. No matter who you are a heart attack can happen without warning. If youve had a heart attack, a bayer aspirin regimen can help prevent another one. Be sure to talk to your doctor before you begin an aspirin regimen. Bayer aspirin. They say when mr. Clean saw all the Different Things his new smart phone does. It reminded him of his magic eraser. Its not just for marks on walls. Its tough on kitchen grease. And bathroom grime too. Hes your. Man sternly where do you think youre going . Mr. Mucus to work, with you. Its taco tuesday. Man youre not coming. I took mucinex to help get rid of my mucusy congestion. Im good all day. [announcer ] mucinex keeps working. Not 4, not 6, but 12 hours. We live in a world where you have more choices about where to invest your money than ever before. A virtual infinity of etfs, mutual funds, but more choice isnt always better. Sometimes having more options just makes it impossible to decide which ones are right and which ones are wrong for you. And youve never had more options when it comes to Picking Exchange traded funds and mutual funds than you do right now. Theyre everywhere. At this point, there are so many different kinds of etfs that it as a side note, i hate the way many of the sector based etfs, the ones that let you buy and sell an entire group like banks and home builders, i hate the way they have been warping the way the whole stock market trades. Thats something you can find out more about in get rich quickly. I have to urge you to find out about them. But the important thing is this, you have all sorts of etfs and mutual funds out there and they can advertise. The companies that run the funds, they want your money. One of the biggest mistakes you can make as an individual investor is to give it to them with a few exceptions. Unfortunately, this is one of the most common money mistakes out there. Many people in the country simply equate investing with putting their money in a mutual funds. Some 80 Million People have exposure to a mutual fund. Many of you dont have a choice. A lot of 401 k plans dont let you pick individual stock. They just give you a menu of mutual funds to choose from. Which is one major reason i think all else be equal, an individual requirement account, for retirement for you. What exactly is so bad about most mutual funds . Why am i railing against something that is an institution in this country . Simple. If youre investing in mutual funds, youre most likely well to put because lets say youre getting hosed. Now, i dont want to paint with too broad a brush here. There are some worthwhile mutual funds, and ill tell you how to find them in a minute. But first, you need to understand the problem with the mutual fund model. My main beef here is that with actively managed mutual funds, mutual funds where there are people deciding which stocks or other securities to buy and sell, weve got some problems. Unlike hedge funds, Mutual Fund Managers dont get paid for delivery of performance. They collect fees from their investors, people like you. And the amount of money they make depends entirely on the size of their investments under management. Aum, we call it. Which means the biggest incentive is not necessarily to do well, something that good performance can really help with. But what theyre really being money from more investors, salespeople for the fund. And thats part of the reason why in study after study, year after year, it has been shown that the vast majority of actively managed mutual funds underperformed their benchmarks like the s p 500. In other words, if you invested in actively managed fund for large capitalization u. S. Stocks, then its performance will most likely fall short, fall short of the s p 500. To make matters worse, even though actively managed funds consistently underperform the market, they have some of the highest fees in the business. How do you like that . They dont do as well as the benchmark, and they charge more. [ booing ] so even if your fund does manage to beat benchmark, it could be eat under up by fees. Youll end up with an underperforming market. Of course, there is some actively managed funds with fabulous managers who consistently driver terrific results. When a mutual fund delivers such Great Results for a long, if a manager is a decent person, investments. Put their foot down. At a certain point it becomes incredibly difficult to beat the market. Thats the law of large numbers. As a general rule, if youre going to invest in mutual funds, you daytona want to be in an actively managed ones. The fees are too high. And the evidence that the bulk of them underperform is frankly that way. You know that i think your best strategy is to manage your own portfolio of individual stocks. Thats what i talk about night after night on mad money. For those who dont have the time to Research Individual companies, or if your 401 k plan wont let you own them, let me tell you the smart way to invest in mutual funds. You want, you can write this down. A cheap low Cost Index Fund that mirrors the market as a whole, one that mimics the s p 500. Index funds of ultra low fees and with an S P Index Fund, you have a vehicle that will let you participate this the strength of the stock market without having to spend the time picking now this may sound like a real simple solution. Dont overthink it. The whole point of putting your money in a fund is to save you the time and effort to manage your own portfolio stocks. Thats why i think its insane when people start owning multiple funds. By its very nature, a fund should be diversified. Ly the is really no reason for home members like you to have any exposure to them. If youre going to take the time to try to play individual sectors that at that time would really be much better spent picking individual stocks. As for etfs, these vehicles are for trading, not investing. I dont like them. Many etfs rebalance every day and that can take a toll on a long performance. Theyre not set up for longterm performance. In general, if youre not a pro and not managing a portfolio of different stocks and not day trading every single day, you probably shouldnt be fooling around with the etfs either. Here is the bottom line. At the end of the day i think a least bad way to manage your money better than the vast bulk of managed mutual funds. But an index owns everything, the good, the bad and the ugly. If you do have the time, you can beat the performance of an index fund by picking stocks yourself. Which is the entire reason i do the show every night. If you dont have the time, dont overthink it. Just one cheap S P Index Fund is indeed the best way to go. Mary in maryland, mary . Caller booyah, jim. Jim, i started listening to you a while back. Then i started buying stocks on your advice. Thank you. Caller now im looking at my portfolio here. And jim, jim, mine eyes have seen the glory. So i want to get a little fancier and perhaps buy some however, im curious about adr and possible exposure to Foreign Currency Exchange rates. So can you edgeukramer on Exchange Rate exposure . Sure. We have the battle hymn of the republic going overseas. I dont know if i want that if you want to own individual stocks and the businesses are good, i dont really care where they are. I dont even care about the currency. If the business is that great, the stock will go higher. If youre buying an adr and its a European Company and the euro is being weakened by central bank issues, you will not do well even if the stock does well. All things being neutral and you dont have a country or continent trying to debase the concerns circumstances im fine with it. If they are, you have to stay away and stay in the good ol us of a. Which is a mart way to invest. Matthew in new york . Matthew . Caller bababooyah, jim. Bababooyah back at you. Caller im 23 years old, a recent college grad and new to the workforce. Ira. Realizing i want to kind of go for an aggressive allocation for growth to take on risks. But im unsure of how to do that exactly. I want to get your suggestions for someone starting out to the retirement investing. How would you go about doing it . You want to have the fastest young growth stocks. And those are tend to be found in technology sector. But also, of course, in biotech. Now, dont go too crazy. Ill have one or two stocks of company tass arent making money. No more than that. Those are the most fertile areas. Junior growth stock, companies that are worth a billion dollars or less. A lot of them that are too small to talk about. One of those two. These are all fine. You can do those because if you lose money, youve got the rest of your life to make it back. Sorry, not so much mutual love here. Picking stocks is still the best way to manage your money. If you dent have time, just the cheap s p 500 over most actively managed funds. Now there is much more mad money ahead, including how to find the best path to a healthy retirement depending on your income. Then dont forget your kids, please. Protecting your children from Student Loan Debt will put them in a better position to build their future. Plus finding your tweets without the 140character restriction that so hemmes in. Stick with cramer. Nicen easy. We only make the most real natural looking color. So even in revealing sunlight, it doesnt look like hair color at all. It looks like, its a hundred percent you. Ive been on my feel all day. Im bushed yea me too. Excuse me. Coming through ride the gel wave of comfort with dr. Scholls massaging gel insoles. Theyre proven to give you comfort. Which helps you feel more energized. All day long. I want what he has. Olay total effects a skin transformation that rivals the leading Department Store moisturizer. Revives skin to fight 7 signs of aging. With olay, you age less, so you can be ageless. Olay. Ageless. I think we shouldve taken a left at the river. Tarzan know where tarzan go tarzan does not know where tarzan go. Do you know where the waterfall is . Waterfall . No, me tarzan, king of jungle. Why dont you want to just ask somebody . If youre a couple, you fight over directions. Its what you do. If you want to save fifteen percent or more on car insurance, you switch to geico. Oh ohhhhh its what you do. Let me tell you about whether it makes sense for you to use a regular 401 k or an ira, or for you to go with a roth, which is a term im sure youve heard countless times but may not understand. I know i talked endlessly about the benefits of using an individual retirement account and a 401 k plan to invest for retirement. Im not going to beat a dead horse here. This is the subject i get a ton of questions about. Should i put my money in a roth account or a regular one . So why dont we start with a roth ireaira. It may be the single greatest thing our government has done for lowincome families since the end of the war on poverty, which at best ended in a draw. Poverty possibly winning. I told you how about a regular ira lets you take preincome tax invested and then your gains year after year, decade after decade totally taxfree until you decide to withdraw that money when you retire. With the roth, you make contributions with after tax income. So in other words, unlike a regular ira, putting money into a roth wont decrease your tax bill. On the other hand, once your money is in a roth ira, you will never pay taxes on it again. As long as your cash remains in your account, you dont pay Capital Gains tax. You dont pay dividends tax. When you withdraw it which you can do without penalty at age 59 1 2, you dont pay any income tax on your withdrawal. This is fabulous. In other words, with a roth, you pay taxes now so that you dont have to pay income tax 30 or 40 years from now when you retire. There is one more positive point about a roth. You can withdraw the money youve invested, note your gains, just the amount you contributed and you wont get hit with a 10 penalty, which is what happens when you try to withdraw money from a regular ira before you hit that magic age of 59 1 2. Thats very different from a regular ira where you dont pay any taxes or contributions now, and your gains dont get taxed within the account. The money, every penny you take out is taxed as ordinary income. It can be a very high rate. Which means when youre trying to decide between a roth ira and a 401 k or a regular ira and a 401 k , youre basically deciding whether it makes more sense to pay income tax now with a roth or pay income tax once you retire with a regular account. You have to figure out if youll be in the higher tax bracket after you retire or a lower one. This is a complicated question and has a lot to do with the specifics of your situation, your career and how old you are. A quick rule of thumb. For anyones marginal tax rate is 25 or less, which is most of america, i think you ought to go with a roth. Better the take the hit up front than allow your roth ira to compound taxfree the rest of your life. Remember, for those who dont have the time to pick their own diversified portfolios of say five to ten stocks, park your retirement money in a low Cost Index Fund that mirrors the s p 500. Some bonds. But really, until you retire, stocks should make up the majority of your investment. I noticed this before. Im going to keep repeating it until they take me off the air. So its necessary. But its contrary to conventional wisdom. I want stocks, not bonds until later. How about a roth 401 k . This works like a roth ira. Meaning you make contributions and never pay taxes again except that its a 401 k plan, it has a much higher contribution limit than an ira. The government says the 401 k contribution limit is 18,000. Whereas an ira annual contributions are capped at a mere 5,500. And there is one other big difference. A roth 401 k deputy have any kind of income tax. No matter how much money you earn, you can take advantage of these as long as your player decides to give you the option. Of course, all this depends on what you think the future is going to look like. If you think taxes are headed higher over the course of your lifetime, then a roth 401 k in the future, that is so the way to go. Even if youre making a lot of money in the present. I think that belief is mistaken. For those of you young people who only become politically conscious under the obama seem there is no way to stop the tide of higher taxes. But history series different. And i believe we can close the deficit without substantially raising taxes, about as political a as im going to gets on this show. At the end of the day, this is both beyond our control and therefore beyond our ability to predict. The bottom line, the lower your present income, the lower your taxes. A roth 401 k or roth ira lets you pay those low rates now, and never worry about taxes again for your retirement money. The less you make, the more likely this roth is for you. Its that simple. And when youre saving for retirement, dont worry about what could go catastrophically wrong 30 or 40 years in the future. Just worry about making the best choices right now. Break. Y, you forgot the milk thats lactaid. Right. 100 real milk, just without the lactose. So you can drink all you want. With no discomfort . Exactly. Here, try some. Mmm, it is real milk. See . Delicious. Hoof bump oh. Right here girl, boom lactaid. 100 real milk. No discomfort and for a creamy and delicious treat, try lactaid ice cream ive been on my feel all day. Im bushed yea me too. Excuse me. Coming through ride the gel wave of comfort with dr. Scholls massaging gel insoles. Theyre proven to give you comfort. Which helps you feel more energized. All day long. I want what he has. coughing coughing disrupts everyones life. Thats why theres delsym. Delsyms advanced time release formula helps silence coughs all night. We read a lot of stories about the crushing burden of Student Loan Debt. Right now 10s of billions of americans owe more than a trillion dollars in student debt. Thats an incredibly high figure. And its not just that it really stinks to graduate from college or graduate school and immediately realize that it might take decades to pay back the loan. In study after study kids who graduate with no debt end up than their classmates who have outstanding student loans. Now im a big believer in social mobility. Which is why im confidently coming out here and teaching you how to use the stock market because its the greatest engine of wealth every create and i want to help you use it to make serious money. For any of you who are parents or thinking of becoming parents, let me tell you right now there are very few things you can do for your children than are better than paying for as much of their College Education as you can afford. We know College Graduates have a much better time getting jobs, especially in our current environment where unemployment is still too high. And we also know they ultimately make more money. If i were abe maslow style hierarchy, you can google that, it is more important for you to save and invest for retirement, which is why i talked about it earlier in the show. For those of you who are parents, how could your own retirement possibly be more important than making sure your kids have the best future because believe me, if you reach retirement age and dont have enough money to pay for your kids . Who do you think is going to support you . Your kids. You dont want to be a burden on them. Take care of yourself first. After you saved enough retirement, then its time to start thinking about college. Even if your kid is only a toddler. Heck, even if your kid is kind of a gleam in your eye so to speak. And the best way to save for college handsdown is what is known as a 529 plan. These plans do vary by state. But the general rules are true all across the country. There are two kinds of 529 plans. Some states let you use a 529 as way to hedge against tuition inflation by buying tuition credits at todays prices that can be used in the future. Thats not what im talking about, though. I want you to use the 529 savings plan. These are run by the states, and the rules differ from state to state. But generally speaking a 529 doesnt let you manage your own portfolio. You have to pick between a mix of different mutual funds, just like with many 401 k plans. I prefer you to have control of your assets and the selection of which stocks to buy and which actual instruments, but 529s have so much going for them, im going to swallow this one. Remember, when you can only choose between funds, go for a low cost fund that mirrors the market. Either the s p 500 or Something Like the vanguard total market fund, which youll see in many of these 529 plans. It literally owns all the stocks traded, but this performance will be very similar to the s p 500. So what the rules for this 529 plan . Lets say you just had your first child. Congratulations if you can afford it, you should start a 529 with your kid as the beneficiary right then and right there. Anyone who is street addict knows i talked about trading alcoa throughout the birthing. Contributions are not tax deductible. So youre paying for this out of after tax income. Thats not to great. Here is the good part. Once your money is in the 529, you dont pay any taxes on the gain. You let them compound. Really, its a lot like a roth, except for college rather than retirement. Because of federal gift tax laws, you can only contribute 14,000 a year if youre single, 28,000 if youre married. And you file your taxes jointly. Still, thats a heck of a lot of money when you think about it. Your childrens grandparents can contribute to the same 529 plan too. If you dont have the money, a grandparent can start a 529 with your kid as the beneficiary. Although for Financial Aid reasons, its better to have a parent do it. Now lets say for some reason you or your parents are sitting on a really huge sum of money. One of the cool things about a 529 plan is you can front load five years worth of contributions without incurring the federal gift tax. As long as you dont write any checks to the plans beneficiary over the next five years. In other words, a single parent invest 77,000 into a 529 right from the start. Or if youre marrying, you could contribute 140,000. For the next five years after that you wont be able to contribute anything without being hit by the gift tax, which is something you dont want. But honestly, once you drop that kind of money into a 529, you wont need to make too many more contributions. The key here, if you want to get that money into your kids 529 as early as possible. Thats because the greatest of these plans is all about the power of compounding. Remember, you dont pay taxes within 529. So if you can somehow contrive to contribute 75,000 right after the bat and invest the money in a low Cost Index Fund that mirrors the market, the rule of thumb is over time youll make roughly 8 a year. I know the stock market a actually a lot more volatile than that. But just as a thought experiment, if stocks generally perform like they have historically you could double your investment in about nine years. So if you start saving right when your kid is born, by the value of your plan will have doubled and doubled again. After 18 years, barring a catastrophe, you could have as much as 280,000. Thats enough for a fancy expensive College Education and a decent law school. I know most people cant front load a 529, especially with all the expense that comes with raising a kid. But its worth keeping in mind that front loading as much as possible is indeed the best strategy. For grandparents this may sound grim, but your 529 contributions wont count stards your estate tax. Any 529 plan you dent use you can transfer to another relative, siblings, parent, even first cousins. And if you save all this money and your ungrateful kids decides not to go to college, you can plan. In that case you have to pay taxes on any of your gains, along with a 10 penalty. So here is the bottom line. No paying for your kids College Education isnt as important as providing for yourself in retirement. If you have children and after contributions for a year, putting money in a 529 College Savings plan should be the next item on your agenda. Its the best way to protect your kid from the crushing burden of Student Loan Debt. Mad money is back after the break. A mouthbreather how can anyone sleep like that . Well, just put on a breathe right strip and pow it instantly opens your nose up to 38 more than Cold Medicine alone. So you can breathe and sleep. Shut your mouth and say goodnight mouthbreathers. Breathe right theres moving. And theres moving with move free ultra. It has tripleaction support for your joints, cartilage and bones. And unlike the big osteobi flex pills, its all in one tiny pill. Move free ultra. Get your move on. Theres a more enjoyable way to get your fiber. Try phillips fiber good gummies plus energy support. Its a new fiber supplement that helps support regularity mmmmm, these are good nice work, phillips the tasty side of fiber, from phillips. Shoulders dont just carry pads. They carry your fans passions, hopes, and dreams and maybe, a chance at greatness. Holy cow. Weve got to get to some of your tweets that you have been sending me jimkraemer, including ones that are very nice and smart. Kenneth tweets i love you, jim. I love you, kenneth stegan 23. How is that . Its requited. No im a sweet guy. Jw green underscore wants to know the following. Why care about shortterm hit if you have a longterm Investment Strategy . Amen. How many times have i said i like xyz stock . It goes down that day or people want to burn me in scalding oil. It doesnt have to be that day. Think a little longer term. Here we have dii go, who wants to know what other books should Home Investors have under their belts to help them trade manage better. Get a plan. One up on wall street and beat the street, peter lynch. The street. You might want to look at some of david darschs books. Those are available on amazon. I use those a great deal. And he taught me a lot at Goldman Sachs and moved on. But david garths books are very good. Up next, do you ever sleep or you with clones to assist . Winkie face. Winkie face presuming means like an emoji thing. Okay. Now we have answered that question. Now, give me a heads up. Btw, which i think stands for by the way, i now following your know what you own motto. Kwyo. Clean my portfolio this week. Yo you only live once. So i totally bring with you. Im in the market because of you. Sir, just give all the hate areas big booyah keep teaching us what they want to grow, jim. Let me give you a little heads up. I love the haters. I wouldnt be doing this if it werent for them. I would have gotten out years ago. Im a spiteful, driven guy to the haters. And everyone in my personal life knows that. So haters, youre why im in this game. Cramer cramer, you are super, you are awesome. Im a firsttime investor. Thank you for inspiring me to get in the game. Your show is the best. Im so glad youre on tv. I want you to know that you have transformed me. Thank you, cramer. One day a rider made a decision. The decision to ride on and save money. He decided to save money by switching his motorcycle insurance to geico. Theres no shame in saving money. Ride on, ride proud. Geico motorcycle, great rates for great rides. Janet . Cough if you can hear me. Dont even think about it. I took mucinex dm for my phlegmy cough. Yeah. But what about mike . It works on his cough too. Cough it works on his cough too. Lets end this. Stress sweat. It can happen anytime to anyone. Stress sweat is different than ordinary sweat, it smells worse. Get 4 times the protection against stress sweat. I like to say there is always a bull market somewhere. I promise to to try to find it just for you right here on mad money. Im jim cramer, and ill see you next time. Its tuesday, february 16th. Coming up on early today. As the the nasty name calling and personal attacks get even more bare knuckles. Ted cruz is the most in politics. Ive never heard another when both marco rubio and donald trump scream liar, liar, liar. Then the musics biggest night. What happened to adels return performance . And the multiple tributes that brought down the house. Plus wicked weather causes havoc around the u. S. And a creature from the depths of the polar vortex. Early today starts right now. Good morning, im dara brown. The battle lines have been drawn between democrats and republicans over who should fill the Supreme Court justice