DeepSummary
In this episode, Jim Cramer discusses the benefits and drawbacks of investing in 401(k) plans and mutual funds. He explains that while 401(k) plans offer tax-deferred growth and potential employer matching contributions, they often come with high fees and limited investment options. Cramer suggests that for many people, an IRA may be a superior choice, as it allows for greater control over investments and typically has lower fees.
Cramer also delves into the topic of Roth IRAs and Roth 401(k) plans, explaining how they differ from traditional accounts in terms of taxation. He advises that for those in lower tax brackets, a Roth account may be preferable, as contributions are made with after-tax dollars, but withdrawals in retirement are tax-free.
Additionally, Cramer discusses strategies for saving for college through 529 plans, which offer tax-deferred growth and other benefits. He emphasizes the importance of starting to save for college early to take full advantage of compound growth.
Key Episodes Takeaways
- 401(k) plans often have high fees and limited investment options, so IRAs may be a better choice for many investors.
- Roth accounts (Roth IRA or Roth 401(k)) can be advantageous for those in lower tax brackets, as contributions are taxed upfront, but withdrawals in retirement are tax-free.
- Low-cost index funds tracking the S&P 500 are often a good investment choice for those who don't want to pick individual stocks.
- Saving for retirement should be the top financial priority, but after that, contributing to a 529 plan for college savings is recommended.
- Starting to save for college early and taking advantage of tax-deferred compounding in a 529 plan can significantly grow your savings over time.
- While mutual funds can be convenient, many actively managed funds underperform and have high fees, making them a less desirable option for many investors.
- Employer matching contributions in a 401(k) plan should be taken advantage of, as they represent free money.
- When investing for retirement, asset allocation and risk tolerance should shift as you get closer to retirement age, with a more conservative portfolio.
Top Episodes Quotes
- “Basically, with a Roth, you pay taxes now, so you don't have to pay any income tax 30 or 40 years from now when you're retired.“ by Jim Cramer
- “At the end of the day, a cheap S&P 500 index fund is the least bad way to passively manage your money better than the vast bulk of actively managed mutual funds.“ by Jim Cramer
- “The greatest benefit of these plans is all about the power of compounding. Given that you don't pay taxes within the 529, if you can somehow contrive to contribute $85,000 right off the bat, and you invest that money in a low cost index fund that mirrors the market, the rule of thumb is that over time, you'll make an average of roughly 8% per year.“ by Jim Cramer
- “After you've made enough retirement contributions for the year, putting money in a 529 college savings plan should be the next item on your agenda.“ by Jim Cramer
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Episode Information
Mad Money w/ Jim Cramer
CNBC
7/1/24