only geometry and physics you know the one thing they almost never teach you in high school, let alone touch with a ten-foot-pole in college financial literacy i'm not talking about economics here you can be an econ major and still learn nothing about personal financial planning or retirement readiness or even how to balance a darn checkbook, let alone how to invest your money wisely money is not talked about in education. it's like the third rail of the whole educational system and that's why i'm on a constant mission to teach you about every aspect of managing your money so you can become a better investor, both when it comes to retirement investing and playing around with what i call your discretionary "mad money" portfolio. which is why i wrote get rich carefully to begin with. even if you don't own individual stocks, you probably have some kind of exposure to the stock market a 401(k) plan, which is why i want to take a moment to talk about retirement for those of you who have been living in a cave for the last 20 years, 401(k) plans are the main way americans save they're offered by your employer and among the greatest tax deferred vehicles out there, the individual retirement act. for those of you 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. i'm going to tell you some things that you won't hear from the so-called experts. this show's different. at this point it's pretty much conventional wisdom that you have to invest in your 401(k), that only an idiot would not invest in your 401(k). many would tell you to max it out if it's feasible maximum contribution tends to be going up over time that's a serious chunk of change remember, those contributions come from your pretax income however, i am not one of those people who thinks you should max out of your 401(k) i will not someone who's going to sing the praises of the 401(k) and tell you it's the key to your financial salvation. it can be a mixed bag. a couple of really great features, and bad ones, too. those bad futures will eat away at your returns for fees that are almost hidden from you that are upsetting to me. let me lay out the good, bad and ugly of the 401(k) plans and whether it makes more sense to contribute to your 401(k), or if the cash is better used somewhere else it's a tax deferred investment vehicle. you pay no taxes on what you put in you in ever pay capital gains taxes on the profits you make in the 401(k) which lets you compound year after year that's fantastic, decade after decade tax-free until you start to make withdrawals. readers of my book and watchers of the show know i'm a believer in compounding suppose you're 30 years old and start invest 5g$,000 to your 401(k) remember, you're not paying any income tax on that $5,000 contributions 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 you'll be contributing $150,000 to your 401(k) plan because that money's able to compound year to year without any capital gains taxes, by the time you're 60, that $5,000 pretax income, that could be $511,000 if you had to pay taxes on dividends and capital gains, that would be a lot lower. perhaps as much as $110,000 lower. that's how important compounding is and avoiding, well, let's say the tax deferred nature of the event. you only have to pay taxes on your 401(k) money once that's when you decide to withdraw it. that withdraw in taxes is ordinary income. since you'll likely be retired by then, most of you will end up paying a lower rate than when you first earned it when you're getting the higher rate level. so that's one major reason to like 401(k) plans. the second, not all employers will match contributions, but many will. for every dollar you invest, your employer might give you 50 cents up to a certain amount you never want to walk away from free money, especially when it's untaxed. if you don't get free money from your employer, it's a much less compelling option. there are a lot of things about a 401(k) plan that can be really bad. which is why if, again, you don't get a match from your employer, it's better to save for retirement via the individual retirement account, i.r.a. you can only contribute $5,500 to your i.r.a. or $6,500 if you're over 50 roll it into an i.r.a. from your 401(k) and that's what you should do every time, switch your employers or find yourself out of work. why do i think the i.r.a. is the better option? 401(k) plans vary widely from company to company some of them fif you terrific range of choices and let you pick individual stocks 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 can't pick your own stocks in 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's actually worth investing in i'll make this simple. if you can't pick your own stocks in a 401(k), you want a nice low expense index fund. if your 401(k) doesn't even offer that, shame on you well, shame on your company. then go with a self-directed i.r.a., full service discount program, so you can have control over your money. one more negative. within a 401(k), when you invest in a mutual fund, you have to pay that mutual fund's fees. this is really important your 401(k) administrator, the company -- the people your employer hires to run these plans, they will also charge fees meaning that all the money 401(k) saves you on taxes, a great deal of that could be clawed back by these fees. if you ever looked at your statement and wonder why your holdings aren't increasing in value like they should be, fees are probably the reason. why does all this leave us here's my bottom line on retirement investment. the company you work for offers a employer match for your 401(k) contributions, you want to put money in your 401(k) until that match is maxed out no reason to pass up on free money. put any additional retirement savings in an raflt. if there's an employer match but your 401(k) doesn't give you any options worth investing in, you would be better to skip the 401(k) and go straight to an i.r.a. immediately debra in california. debra? >> caller: hi, jim, thanks for taking my call. >> you're welcome. >> caller: i have a two-part question in the value of listening to a company's earnings conference call 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, a company can report good earnings, but guide lower on the revenue and earnings going forward, and the stock will go up the second, you might think it should go down, right? the second part of my question is, i'm 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 i'm not going to get up at 4:00 or 5:00 a.m. to listen to it. so i'm not going to take any action. >> here's the solutions to this, debra. you have no gun to your head unlike the hedge funds listen to your ledger. i'm not trying to get anybody into buying a stock before a quarter. 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. that's the advantage of the individual investor. you don't have to play that day. doug in nevada doug >> caller: boo-yah >> okay. >> caller: my question is, i have a 401 fairly substantial. would it be advisable for me to change that to a self-directed i.r.a. >> okay. well, what matters is the match. if you have -- if the employer is matching, no. you want to get the max -- you want to get the max match, so to speak. and then after that, yes but if it's just a situation of six of one and half a dozen of another, and the list isn't that good to allow you to be in a 401(k), yes, i want you to get a self-directed i.r.a. when it comes to retirement, if your company matches your contribution to 401(k), then max that out that's really important. but if you don't get employer match, you don't have investable options, go straight to the i.r.a. on mad tonight, you just got your diploma, now what too busy to invest in stocks that's fine. i'll put your money behind the next best thing. there are many roads to a healthy retirement stick with cramer. i'll chart the course. what started as a passion to make something original... ...has grown into an enterprise. that's why i switched to the spark cash card from capital one. now, i'm earning unlimited 2% cash back on every purchase i make. everything. which adds up to thousands of dollars back every year... ...and helps keep my passion growing... ...in every direction. what's in your wallet? ♪ some things are simply impossible to ignore. the strikingly designed lexus nx turbo and hybrid. the suv that dares to go beyond utility. experience amazing. if everyone in this country went insane, and decided to turn american into cramerican with me as king, i would be making changes pronto but because this is a show about machine, i'm going to stick to the elements of the scheme we don't teach our young people how to handle money. would it be so crazy if you had to take a class in personal finance before you could graduate from high school? i think it should mandatory. now, sadly, i am nobody's dictator and i don't have any influence over educational policy in this country, but i do control what we talk about on this show. can i speak words we all believe but very rarely get to say in conversation money is important it's really important. and caring about the state of your finances does not make you some kind of superficial bourj woi onster let's say you want to get married, you just inflicted your horrible credit on your new spouse neither you or your spouse will able to even get a darned credit card these things matter in life. they say money can't buy happiness, but i find that to be dubious in effect. being broke can be a buzz kill from the time i spent living in my 1978 ford fairmont. i wish i had an expert to guide me through all this stuff way back then. what the heck should young people do with their money first, and foremost, and always, you need to invest that's the only way you're going to be able to achieve financial freedom. what i mean is, living a life where you're not totally 100% dependent on your paycheck i'm always thrilled when i see members of the younger demographic taking an active hand in handling their own money. i know that many young people feel like they have all the time in the world, many start investing before they're truly ready, when they are in fact better things for them to be doing stuff with their money so we've got to really drill down this. that's why i'm going to give you three lessons. and a caveat for those who are recently out of college. let's start with the caveat. before you can start investing, you need to pay off your credit card debt. but it's especially true for younger people credit card companies have gotten aggressive about offering credit to college students, no matter how much money you rack up in the stock market, if you're calling a balance on your credit card, it will eat into your returns long term the interest on those 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 you'll be tempted not to i can't defeat that credit card debt no matter how many great stock ideas i have on the show the three lessons for young investors, for young people who recently graduated and for everyone out there you need to save money i recognize not everyone has an inherent predisposition to save. we can't all be natural cheap skates i acknowledge that just telling you to save over and over again won't necessarily do any good. however, the stock market is a great way to trick yourself to save part of your paycheck that you might otherwise spend. we tried it on the show, try to do some entertainment within the teaching, whereas leaving money in a savings account or certificate of deposit feels like, well, kind of joyless for a lot of people. not to mention the fact that the returns are so small that they're basically meaningless. if you invest your savings in the market, it will be 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'll like. you'll have to sell the stocks to get your money back, and there's a natural predilection to not sell once you buy it also has the added advance as the smartest place to put your money in the financial perspective right now. money market funds, wow, you see the rates, i check them every week, cd, they give you hardly any return at all. a waste to make savings when the cash can make you a lot more money in stocks in the broker account. second lesson for young investors? this is a much more targeted piece of advice. while you're still young, you can afford to take a lot more risk than, say, an old fogey like myself. when you're in your 20s, you can get away with riskier, some would say potential down sides generally being a lot more aggressive with your money not because young people are naturally better speculators, but simply because when you make a mistake in your 20s with your money, you have your whole rest of your life to fix it you can afford to buy more high-risk stocks and end up losing your money when you're young because you have 40-odd years to make up your losses older investors, you've got to be more cautious the closer you get to retirement, the more conservative your strategy has to be. if you're in your 20s, you should invest like a young person, not an old person. forget about bonds, people, please, i'm begging you. there's no reason for someone in their 20s to have bonds. young people, i want you to take this advice to heart because i suspect the recent college grads most likely to invest in the market are also the ones who are most responsible, the most prudent about their money. prudence is great when you're putting together a budget to live with, within your means, or deciding how much of your paycheck to save every month for young investors, being too prudent is actually being reckless 20-somethings, live a little, at least in your stock portfolios forget about bonds for the next decade, play around with speculative names, maybe some biotech companies, even if they blow up on you and go all the way to zero, you've got your whole life to make it up it's never too early to start investing for retirement use your 401(k), put your money in a roth i.r.a. i'll give you 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. remember, when you're young, you can afford to take a lot more risks in your portfolio. it's never too to start contributing to your 401(k) and i.r.a., especially if that i.r.a. is a roth let's go to mike in tennessee. mike >> caller: hey, jim. how are you doing? love your show >> thank you. >> caller: we watch it all the time. >> thank you. >> caller: my question is, a couple of years ago you said you did not like buying a stock if the peg ratio got above two. >> right. >> caller: i'm 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 trigger and sell the stock >> more than two times the growth rate, i do get nervous. there are some stocks that don't trade on earnings. you've got to be careful like a cold stock, a bunch of cold stocks i talk about all the time the typical stock if it trades lower than two times that rate of growth, i'm 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 invest in money. i've got a lot more tonight on the deep dive into the pros and cons of index funds. which way do i come out? don't miss my take income is a big factor in choosing your retirement path. plus, i wouldn't wish student loan debt on my worst enemy. i'll help you protect your family from this expensive burden don't go away. stay with cramer stay with me, mr. parker. when a critical patient is far from the hospital, the hospital must come to the patient. stay with me, mr. parker. the at&t network is helping first responders connect with medical teams in near real time... stay with me, mr. parker. ...saving time when it matters most. stay with me, mrs. parker. that's the power of and. ♪ to err is human. to anticipate is lexus. experience the lexus rx with advanced safety standard. experience amazing. we live in a world where you have more choices where to invest your money than ever before a virtual infinity of etfs, mutual funds but more choice isn't always better sometimes having more options make it hard to decide what's right or wrong for you you never had more options when it comes to picking exchange traded funds and mutual funds than you do right now. they're everywhere at this point there are so many different kinds of etfs it can make your head spin. as a side note, i hate where many of the sector based etfs, the ones who let you buy and sell an entire group, i hate the way they've been working the stock market trades. if you're in the etfs, 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 all advertise. the companies want your money. one of the biggest mistakes you can make as an individual investor is to give it to them with the few significant exceptions unfortunately this is also one of most common money mistakes out there. most people in this country simply equate investing with putting their money in mutua funds. some 80 million people, half the households in america, have exposure to mutual funds a lot of 401(k) plans don't let you pick individual stocks, they just give you a menu of mutual funds to choose from which is one major reason i think all else being equal, an individual retirement account, or i.r.a., is a better way to invest for retirement for you. what exactly isso bad about most mutual funds? why am i railing against something that's an institution in this country? simple if you're investing in mutual funds, you're likely to getting hosed. there are worthwhile mutual funds. first, you need to understand the problem with the mutual fund model. my main beef here is with actively managed mutual funds, mutual funds where there are people deciding which stocks or other securities to buy and sell, we've got problems unlike hedge funds, mutual fund managers don't get paid for delivering performance they collect fees from investors. the amount of money they make depends entirely on the size of the assets under management, aum we call it which means the biggest incentive is not necessarily to do well. something good performance can really help with but what they're really being paid to do is bring in more money from more investors. sales people for the funds that's part of the reason why in study year after year, it's shown that the vast majority of actively managed mutual funds underperformed the benchmark, like the s&p 500 if you invest in an actively managed fund for large capitalization u.s. stocks, then its performance will most likely fall short of the s&p 500. to make matters worse, even though actively managed funds consistently yinds perform the market, they have some of the highest fees in the business how do you like that they don't do as well as the benchmark and they charge more so even if your fund does manage to beat the benchmarks, outperformance could be eaten up by big management fees in a simple index fund could mirror the s&p 500 there are funds out there with fabulous managers who consistently deliver terrific results. i'll tell you how to find them another time but the trouble is when a mutual fund delivers great results for so long, if the manager is a decent person, they'll stop investing new investments, put their foot down. at a certain point, it becomes incredibly difficult to beat the market as a general rule, if you're going to invest in mutual funds, you don't want to be in an actively managed one the fees are too high and the evidence that the bulk of them underperform is, frankly, too staggering to keep going that way. you know what i think your best strategy is to manage your own portfolio. that's what i talk about night after night on "mad money. but for those of you who don't have time, or your 401(k) plan won't let you own them, let me tell you the smart way to invest in mutual funds. a cheap low-cost index fund that mirrors the market as a whole. one that mimics the s&p 500. index funds have ultra-low fees, and you've got a vehicle that will let you participate in the strength of the stock market without having to spend the time picking individual stocks. now, this may sound like a simple solution. don't overthink it the whole plan in putting your money in a fund is to save you the time and effort to manage your own portfolio stocks. that's why it's insane when people start owning multiple mutual funds there are a lot of sector based mutual funds and etfs out there, but there's no reason for people like you to have exposure to them if you take the time to play individual sectors, that time would be much better spent picking individual stocks. as for etfs in most cases these vehicles are trading not investing so i don't like them many etfs we balance every day, and that could take a toll on the long-term performance. the gld is what i like to play for gold but in general, if you're not a pro and not managing a portfolio of individual stocks and not day trading every single day, you probably shouldn't be fooling around with the etfs either. a cheap index fund is better than the bulk of mutual funds. an index fund owns everything, the good, the bad and the ugly if you do have the time, i think you can beat the performance of an index fund by picking stocks yourself, which is the entire reason i do this show every night. if you don't have the time, though, don't overthink it just one cheap s&p index fund is indeed the best way to go. mary in maryland mary >> caller: boo-yah, jim! i started listening to you a while back then i started buying stocks on your advice. >> thank you. >> caller: now i'm looking at my portfolio here, and jim, jim, my eyes have seen the glory so i want to give a little fancier and perhaps buy some china stocks however, i'm curious about adrs and possible exposure to foreign currency exchange rates. so can you edu cramer up on the exchange rate? >> sure. we've got the battle of the republic going overseas. here's the way i look at it. if you want to own individual stocks and the businesses are good, i don't really care where they are, the business is that great. the stock will go higher but understand that if you're buying an adr in a european company, say in the euro weakened by central bank issues, you will not do well even if the stock does well. so all things being mutual, you don't have a country or continent trying to keep pace with the currency, i'm fine with it but if they are, you've got to stay in the good old u.s. of a which is a masmart way to inves. matthew? >> caller: boo-yah, jim. >> boo-yah back at you. >> caller: i'm 23 years old, college grad and new to the work force. i just maxed out my i.r.a. i want to go for an aggressive allocation and growth to take on risk but i'm ub sure how to do that exactly. i want to take some suggestions on investing how would you go -- >> i think you want to have the fastest young growth stocks. those are -- tend to be found in technology sector. but also, of course, in biotech. don't go too crazy have one or two stocks of companies that aren't making money, no more than that those are the most fertile areas. junior growth stocks, companies that are worth $1 billion 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, you've got the rest of your life to make it back sorry, not so much mutual love here stocks is still the best way to manage your money, but if you don't have time, please go with the cheap s&p 500 fund over most actively managed funds there's much more "mad money" ahead, including how to find the path to a healthy retirement based on your income protecting your children from student loan debt will put them in a better position to help their future i'll help you plan for that hefty tuition bill and your tweets without the 140-character restriction that so hems me in. stick with cramer. ♪ ah the moon belongs to everyone ♪ ♪ the best things in life they're free ♪ ♪ stars belong to everyone ♪ ♪ they cling there for you and for me ♪ ♪ flowers in spring ♪ the robins that sing ♪ the sunbeams that shine ♪ they're yours and their mine ♪ love can come to everyone ♪ the best things in life they're free ♪ ♪ let me tell you about whether it makes sense for you to use a regular 401(k) or i.r.a. or for you to go with a roth, which is a term i'm sure you've heard countless times. i know i talk endlessly about using an individual retirement account, or i.r.a. this is a subject i get a ton of questions about. so i put my money in a roth account or regular one let's start with the roth i.r.a. i think that aside from the earned income tax credit, the roth i.r.a. may be the single greatest thing our government has done for low-income families since the end of the war on poverty, which at best ended in the poverty winning on points. i told you about how regular i.r.a. lets you take pretax income and invest it, and your gains compound year after year, decade after decade, totally tax-free until you decide to withdraw that money when you retire a roth i.r.a. works differently. with a roth, you make contributions with after-tax income so in other words, unlike a regular i.r.a., putting money into a roth won't decrease your tax bill but once your money is in a roth i.r.a., you'll never pay taxes on it again. as long as your cash remains in the account, you don't pay capital gains tax and dividend tax. when you withdraw it, you can do it without penalty after 59 1/2, you don't pay any income tax on your withdrawals this is fabulous in other words, with a roth, you pay taxes now, so that you don't have to pay any taxes -- income taxes 30 or 40 years from now when you retire. there's one more positive point with a roth. withdraw the money you've invested, not your gains, just the amount you contributed, and you won't get hit with a 10% penalty, which you get hit with the average i.r.a. when you hit 59 1/2 that's different from a regular i.r.a. when you don't pay any taxes on contributions now and your gains don't get taxed in the account. once you start withdrawing the money, every penny you take out is taxed as ordinary income. which can be a very high rate. which means that when you're trying to decide between a roth i.r.a. or 401(k) and regular i.r.a. or 401(k), you're deciding whether it makes more sense to pay income tax now with a roth or once you retire with the regular account. you have to figure out whether you'll be in the higher tax bracket when you retire or lower one. this has a lot to do with specifics of your situation. your career. and simply how old you are a quick rule of thumb, though. for anyone whose tax rate is 25% or less which is most of america, i think youought to g with a roth. better take the hit up-front than allow your roth i.r.a. and compound tax-free for the rest of your life for those of you who don't have the time to pick your own diversified portfolio, the martest thing to do is park your retirement money in a low-cost index fund that mirrors the s&p 500. as you get older, you can add some bonds but really, until you actually retire, stocks should make up the majority of your retirement investments. i know i said this before and i'm going to keep repeating it until they take me off the air because it's contrary to conventional wisdom, i want stocks and not bonds until later. a roth 401(k), you make contributions with after-tax income and you never pay taxes again, but because it's a 401(k) plan it has a higher contribution limit for example, the government said the 401(k) contribution limit for 2015 is $18,000. the i.r.a. annual contribution is capped at a mere $5,500 unlike a roth i.r.a., a roth 401(k) doesn't have any income cap. no matter how much money you earn, you can take advantage of these as long as your employer decides to give you the option of course, all this depends on what you think the future's going to look like if you believe the taxes are headed higher over the course of your lifetime, a roth 401(k) where you pay your taxes now and pay nothing in the future, that is so the way to go. i think that belief is mistaken. for those of you young people who become politically conscious under the obama administration, it may seem there's no way to stop higher taxes. but i believe we can close the deficit without substantially raising taxes. that's about as political i'm going to get on this show. this is both beyond our control and, therefore, beyond our ability to predict the bottom line, the lower your present income, then the lower your taxes a roth 401(k) or roth i.r.a. lets you pay the low rates now and never worry about taxes again. the less you make, the more likely it is a roth is for you it's that simple when you're saving for retirement, don't worry about what could go catastrophically wrong in the future. just worry about making the best choices right now. 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[he has a new business teaching lessons. rodney wanted to know how his business was doing... ...so he got quickbooks. it organizes all his accounts, so he can see his bottom line. ahhh...that's a profit. know where you stand instantly. visit quickbooks-dot-com. we read a lot of stories about the crushing burden of student loan debt. tens of billions of americans have trlts of dollars in student debt that's an incredibly high figure and it's not just that it really stings to graduate from college and realize it might take decades to pay back those loans. in study after study, kids who graduate with no debt end up being worth a lot more money than their classmates who have outstanding student loans. i'm a big believer in social mobility which is why i'm constantly coming out here to teach you how to use the stock market. it's the greatest engine of wealth created so for any of you who are parents or are thinking of becoming parents, let me just tell you right now that there are very few things that you can do for your children which are better than paying for as much as their college education as you can afford college graduates have a much easier time getting a job. we also know they ultimately make more money. if i were to make a kind of like hierarchy of financial needs, i would tell you that it's 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 to make sure your kids have the best future possible believe me, if you reach retirement age and you don't have enough money to pay for your kids, who do you think is going to support you your kids. you don't want to be a burden on them, so take care of yourselves first. but after taking care of your retirement, it's time to start thinking about college even if your kid is only a toddler. even if your kid is just a gleam in your eye so to speak. the best way to save for college, hands down, is known as a 529 plan these plans do vary by state the general rules are true across the country some states let you use a 529 as a way to hedge against tuition inflation by buying tuition credits at today's prices that can be used in the future. that's not what i'm talking about, though. i want you to use 529 savings plan again, these are run by the states, different from state to state. a 529 doesn't let you manage your own portfolio this is really not my favorite way to do things i prefer you to have control of your assets and the selection of which stocks to buy or which actual instruments but 529s have so much going for them, you know what, i'm going to swallow this one flaw 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 is, you'll see in many of the 529 plans. since it's weighted by market cap, its performance will be similar to the s&p which contains the 500 largest companies. what are the rules for this 529 plan let's say you 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. maybe wait a couple of days. anyone knows i read al coulda throughout the birthing. not one of my finest moments contributions are not tax deductible so you're paying for this out of after-tax income that's not so great. but here's the good part, once your money is in the 529 plan, you don't pay any taxes on your gains. let them compound year after year a lot like a roth i.r.a., except for college rather than retirement because the federal gift tax laws, you can only contribute $14,000 a year if you're single, $28,000 if you're married. and file your taxes giajointly. by the way, your children's grandparents can contribute to the same 529 plan, too if you don't have the money, a grandparent can start a 529 with your kid as a beneficiary. but it's better to have a parent do it. let's say for some reason you or your parents are sitting on a huge sum of money. the cool things about a 529 plan is that you can front load five years worth of contributions without incurring the federal gift tax as long as you don't write any plans to the beneficiary over the five years. a parent or grandparent could potentially invest $70,000 right from the start or if you're married and file jointly, you can contribute $140,000 for the next five years you won't be able to contribute anything without being hit by the gift tax, which is something you don't want but once you've dropped that kind of money in the 529, you won't need to make too many more contributions. the key here, though, is that you want to get that money into your kid's 529 as early as possible that's because the greatest of these plans is all about the power of compounding remember, you don't pay taxes within the 529 if you can somehow contribute $70,000 right off the bat and invest that in a low cost index fund, over time you'll make an average of roughly 8% per year i know the stock market is actually a lot more volatile than that, but as a thought experiment, if the stocks perform like they have historically, you can double your investment in about nine years. so if you start saving when your kid is born, by the time she's 18 it will have doubled and doubled again. if you start with $70,000 and after 18 years, barring some catastrophe, you could have as much as $280,000 i've seen it time and time again. that's enough for a private college education, and a decent chunk of law school to boot. many people can't front load a 529 like this, but it's worth keeping in mind that front loading is indeed the best strategy for grandparents, this may sound kind of grim, but your contributions won't count toward your estate tax. last thing about saving for college and grad school. any money in a 529 plan you can transfer to another relative, siblings, parents, even first cousins. if you save all this money and your ungrateful kid decides not to go to college, you pay a penalty. provide for yourself in retirement, but if you have children, after you've made enough retirement contributions for the year, putting money in a 529 plan should be the next set of your agenda the best way to protect your kids from the crushing burden of student load debt. "mad money" is back after the break. uh-huh. i switched to t-mobile, kept my phone-everything on it- -oh, they even paid it off! wow! yeah. it's nice that every bad decision doesn't have to be permenant! ditch verizon. keep your phone. we'll even pay it off when you switch to america's best unlimited network. holy cow, we've got to get to some of your tweets you've been sending me, including ones that are very nice and smart all right. here we go at kenneth 23 tweets, i love you, jim i love you, kenneth figgan 23. how about that some people call me jack tatum no, i'm a sweet guy. at jw green wants to know the following. why care about short-term hit if you have long-term investment strategy amen how many times have i said that i like xyz stock, it goes down that day and people want to burn me in effigy or burn me in scalding oil it doesn't have to be that day think a little longer term particularly one year with a tax break. here we have someone who wants to know, what other books should home investors have under their belts to help them trade/manage better one up on wall street and beat the street available on amazon. you might want to look at some of david darth's books he taught me a lot at goldman sachs and then moved on. david dark's books are very good up next, 480 tweets, do you ever sleep or did one of your biotechs provide you with -- no, i don't sleep. okay now we've answered that question now, give me a heads up. btw which i think stands for by the way, i'm following you know what your own motto, or kwyo, clean my portfolio this week yo lo. you only live once, so i totally agree with you here's one who wants me to know, i'm in the market because of you. sir, give all the haters the big boo-yah! keep teaching us what they want to grow. let me give you a little heads-up i love the haters. i wouldn't be doing this if it weren't for them i would have gotten out years ago. i'm a spiteful driven guy to the haters and everyone in my personal life knows that so haters, you're why i'm in this game! congratulations! and stick with cramer! where to get in... where to get out. if only the signs were as obvious when you trade. fidelity's active trader pro can help you find smarter entry and exit points and can help protect your potential profits. fidelity -- where smarter investors will always be. aggressive styling, so you can break away from everyone else. the bold lexus is. experience amazing. hey, i'm the internet! ♪ i know a bunch of people who would love that. the internet loves what you're doing... ...so build a better website in under an hour with... ...gocentral from godaddy. the internet is waiting. start for free today at godaddy. whuuuuuat?rtgage offer from the bank today. you never just get one offer. go to lendingtree.com and shop multiple loan offers for free! free? yeah. could save thousands. you should probably buy me dinner. no. go to lendingtree.com for a new home loan or refinance. receive up to five free offers and choose the loan that's right for you. our average customer could lower their monthly bills by over three hundred dollars. go to lendingtree.com right now. i like to say there's always a bull market somewhere, and i promise to try to find it just for you here on "mad money." i'm jim cramer, and i'll see you next time. >> welcome to the shark tank, where entrepreneurs seeking an investment will face these sharks. if they hear a great idea, they'll invest their own money or fight each other for a deal. this is "shark tank." ♪ with a product inspired by his daughter. ♪ my name is travis perry. i'm from dothan, alabama, and i have invented a product that allows you to play the guitar instantly. put that finger there, okay. now strum the bottom four. ooh.

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