bullish bets, that's the way to do it. >> yield start, we think people are overpaying. >> looks like our time has expired. for more options action, go to our website, have a great weekend and stay tuned for mad money begins right after this. ? my mission is simple: to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. i'm trying to make you some money. my job is to not just entertain you but educate and teach you so call me at 1-800-743-cnbc. or tweet me at jim cramer. anybody who has a high school diploma has taken a course in

chemistry, geometry, physics and a host of history classes. you can graduate from college and have a deep understanding of quantum physics. but you know what they teach you in high school but won't touch with a ten-foot pool in college, financial literacy. you can be an e conmy major and not even learn how to balance a darn checkbook. 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 to manage your money so you'll become a better investor when it comes to retirement investing and playing around what w what i call your discretionary mad money portfolio which is a big reason why i wrote "get rich carefully" to begin with. most of you even if you don't own individual stocks directly you probably have some kind of exposure to the stock market. 401(k) plan y you keep the bulk

of your retirement funds which is why i want to talk about retirementment for those of you who have been living in a cave, 401(k) plans are the main way americans save. they're offered by your employer and the tax deferred investments along with the i.r.a. -- not the irish republican army -- i'm talking about the individual retirement account. for those of you about to fall asleep or change the channel because the whole idea of saving for retirement puts you the sleep, hear me out. because you need to know this stuff. i'm going to tell you some things you won't hear from the so-called experts. this show is different. at this point, it's pretty much become conventional wisdom that you have to invest in your 401(k), that only an idiot would not contribute. a lot of experts will 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 overtime. 17,0 17,000, 2014. that's a serious chunk of change. those contributions come from

your pre-tax income. however i am not one of those people who this is you should max out on your 401(k). i'm not someone who will sing the praises 2 s of the 401(k) p. they can be a real mixed bag. bad futures will eat away at your returns sometime us there knees are almost totally hidden from you that are quite upsetting to me i want to tell you whether it makes stones contribute more money to your 401(k) or put that cash to a better place somewhere else. you pay no taxes on what you put in and you never pay a penny of capital gains taxes on the profits you make within your 401(k) which allows your money to compound year after year. decade after decade. totally tax free until you decide to start making

withdrawals. raiders of my books know i'm the huge believer in the power of compounding. suppose you start investing $5,000 a year to your 401(k) and you're not paying any contributions. if you choose your investments wisely, you should generate as much as a 7% return on average so over the course of the next 30 years you'll contribute $150,000 to your 401(k) plan. because that money is able to compound year to year without any capital gains taxes by the time you're 60 that $5,000 per year pre-tax income could be worth over $511,000. if you had to pay dividends on taxes that number would be a lot lower. perhaps as much as $110,000 lower. it's saying the tax deferred nature. you only have to pay taxes on your 401(k) money once. that's when you withdraw it. that put yours withdrawals and taxes ordinary income and since you'll be retired by then most

of you will pay a lower rate if you've been taxed on the money when you first earned it while you're still getting the higher rate levels. that's one reason. the second, not all employers will match your contributions. in other words, for every dollar you you invest, your employer may throw in 50 cents, that's free money and you almost never want to walk away from free money when it's untaxed but if you don't get free money through your employer, i think it's a much less compelling option, frankly, because as i said before, there are a lot of things about a 401(k) plan that can be bad which is why if you don't get a match, i believe it's a better idea to save for retirement via the individual retirement account, or ira, which has the same tax favored status as a 401(k). you can only contribute $5,500 per year or $6,500 if you're over 50 but you can roll your money over from a 401(k) into an

i.r.a. and that's what you should do when you switch employers and find yourself out of work. why is an i.r.a. better? 401(k) plans vary widely. some of them give you a terrific range of choices. but many more companies give you awe 401(k) plan with limited options. sometimes you'll 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, my number one rule 1 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 worth investing in. i'll make this simple. if you can't pick your own stocks in a 401(k), aunt nice low expense index fund. however, if your 401(k) doesn't offer that, shame on your company, go with a self-directed i.r.a. from a full-service discount program. i'm not talking about fidelity. something that you can have control over your money. one more negative, wan 401(k),

you have to pay the mutual fund fund's fees. this is important but your 401(k) administrator, the company -- the people your employer hires to run these plans, they will also charge fees. [ boos ] meaning that all the money 401(k) saves you on taxes, a great deal of that can be clawed become by the fees. have you ever looked at your statement and wonder wide this heck your 401(k) holdings aren't increasing in value like they should be? fees are probably the reason. so here's my bottom line on retirement investing. the company you work for offers an employer match for your contributions, put money into your 401(k) until the match is maxed out. no reason to pass up on free money. after that, put any additional retirement savings into an i.r.a. if there's no employer match or if there's a match but your 401(k) doesn't give you any options worth investing in, you would do better to skip the 401(k) and go straight to an i.r.a. immediately. deborah in california. deborah? >> caller: hi, jim, thanks for taking my call. >> quite welcome.

>> caller: i have a two-part question regarding the value of listing to a company's earnings conference call. >> 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, 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 on that. >> here's the solution to this,

debra. you have no gun to your head unlike that hedge funds, you can listen at your leisure. i'm not trying to get into into a quarter to buy a stock ahead of a quarter if i can avoid it. you want to take a longer term view 234 the comfort of your home without any noise, go listen to the call or read it, go to yahoo! finance, get some of the the research, street.com, cnbc, get some research, match the expectations with what was said. take a longer term view. that's 2 advantage of the individual investor. you don't have to play that day. doug in nevada. doug. >> caller: booyah, mr. k. my question is i have a 401, fairly substantial. would it be advisable for me to change a to a self-directed i.r.a.? >> well, what matters is the match. if you have -- if the employer

is matching, no. you want to get the max match, so so to speak, after that, yes. or -- but if it's just -- it's six and a half or half dozen of the other. if if the funds aren't that good, yes, choose the self-directed i.r.a. let me help you take control of your financial future. when it comes to retirement, if your company matches your contribution to 401(k), max that out. that's important. 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, so now what? don't miss my advice to college grads. too busy to invest in individual stocks? that's fine. there are many roads to a healthy retirement. let's chart your course. let's stick with crime per f cramer. . somewhere amer.

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if everyone in this country went insane and decided to turn american into cramerican with me as your king or general or grand poobah, you better believe i'd be making changes pronto. because this is a show about money, i'll stick to the financial elements of the cramer regime. it drives me nut wes don't teach our young people about how to handle money. i'm talking about early, too. not just college. would it be so crazy if you had to take a class in personal finance before you graduate high school? like those awkward health classes that they make everybody take. sadly i am nobody's dictator but i control what we talk about on this show so can i just take a moment to speak some words that we all believe but very rarely get to say in conference? money is important. it's really important.

and caring about the state of your finances does not make you a supervisual bourgeois monster. lets say you have a lousy credit score and you want to get married. congratulations, you've just inflicted your horrible credit on your spouse impeachment they are you nor your partner will qualify for a loan to buy a car, a home, or perhaps get a darn credit card. these things matter in life. they say money can't buy happiness but i've often found that piece of cliched wisdom to be dubious at best since being broke is indeed a major buzz kill as i know first hand from the time i spent living in my 1978 ford fairmont. i sure wish i had an expert to guide me through this stuff way back then. 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. that's the only way you'll be able to achieve financial freedom, and by "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 managing their own money. too many people start saving and investing way too late. that makes their lives more difficult than they need to be. i also know many young people feel like they have all the time in the world, many feel like they're starting when they're truly ready when there are things to be doing things with their money. we have to drill down. i'll give you three lessons and a caveat for those recently out of college. let's start with the caveat. before you can start investing, pay off your credit card debt. this is something i mentioned before. it's especially true for younger people, especially since credit card companies have gotten aggressive about offering credit to college students. no matter how much money you're wracking up in the stock market, it's going to eat into your returns. i know this myself firsthand and long term the interest on those credit cards will be greater

than from the profit you can make on investing. so 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 ideasive in the show. now my three lessons for young investors. first, this is for young people who recently graduated and everyone out there regardless of age and education level. you need to save money but i recognize not everyone has an inherent predisposition to save. we can't all be natural cheap stakes and 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 into saving a part of your paycheck you might otherwise spend. investing in stocks can actually be fun. we try that on the show, right? we try to do some entertainment within the teaching. whereas leaving money in a savings account or certificate of deposit feels joyless for a lot of people. not to mention the fact that the returns so small they're basically yes, indeed, i'll use

the word meaningless. plus 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 those stocks to get your money back and there's a natural predilection to not sell once you buy. not only is this a terrific way to trick yourself into saving but it has the added advantage of being the smartest place to put your money. traditional saving vehicles like money market funds, wow, see those rates? cds, check those every week, they give you hardly any return at all. it's a waste to keep your savings when that cash could give you more money by owning stocks and working with your money. get your hands dirty with your money. second lesson, this is a much more targeted piece of advice. you can take a lot more risk when you're young. when you're in your 20s you could get away riskier or more reckless strategies like owning more speculative single digit

stocks where the potential upside could be huge but so is the potential down side. why is that? not because young people are naturally better speculators, not at all. it's 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 win back your losses so you have to take those risks. older investors, be more cautious. the closer you get to retirement, the more conservative your strategy has to be. more bonds, more high yielding stocks, fewer stocks trading in the single digits. if you're in your 20s, 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 bond exposure when that money could be invested in stocks. it will almost consistently make you a higher return year after year. young people, take this advice to heart because i suspect the reason college grads most likely invest in the market are also

the ones who are the most responsible, the most prudent about their money. and prudence is great when you're pudding 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 lilt, at least in your stock portfolios. take risks, forget about bonds for the next decade, play around with speculative names. maybe biotech companies with potential. even if they blow up you and go to zero, you've got your whole life to make that money back. final lesson for young investors? it's never too early to start investing. use your 401(k), put money in a roth i.r.a. which is ideal for young investors. here's the bottom line. for young people just out of college, investing is a great way to trick yourself into saving money. you might over wise spend that money. beyond that, remember when you're young you can take more risks from your portfolio and it's never too soon to start contributing to your 401(k) or

i.r.a., especially 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. we watch it all the time. >> thank you. >> caller: my question is, a few episodes 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 sell signal. and if you do, how high will you let it go before you pull the trigger and sell it? >> when it's more than two times the growth rate, i do get nervous. now, there are some stocks that don't trade on earnings and you have to be caringful, like a colt stock, there's a bunch of cold stocks i talk about. but if it trades for 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 trick yourself into saving money. it's never too late to contribute to your i.r.a. or

401(k). i have more tonight on this deep dive into the prose and cons of index funds. hey, which way do i come out? income is a big factor in choosing your retirement path. i'll push you in the right direction right here right now. i wouldn't wish student loan debt on my worst enemy. i'll help you protect your family from this experiencive burden. don't go away. stay with cramer.

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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, you name it. but more choice isn't always better. sometimes having more options just makes it impossible to decide which ones are right and which ones are wrong for you. and you've 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's so many different kinds of etfs it can make your head spin. 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've been warping the way the whole stock market trades. that's something you can find out more about in "get rich carefully." if you're in these etfs, i have to urge you to find out about it. the important thing is this. you have all sorts of etfs and mutual funds out there and they can advertise. the companies that run these funds want your money. one of the biggest mistakes you can make as an individual investor is to give it to them with a few significant exceptions. unfortunately, this is one of the most common money mistakes out there. most people in this country equate investing with putting their money in mutual funds. some 80 million people, that have households in america, have exposure to mutual funds. many of you don't have a choice. 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 reason i think all else being equal and individual retirement account or i.r.a. is a better way to invest for retirement for you. what exactly is so 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 most likely to well, put it delicately, you're getting hosed. i don't want to bant too broad a brush here. there are some worthwhile mutual funds and i'll 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 decide which stocks or other securities to buy and sell, we've got problems. unlike hedge funds, mutual fund fund managers don't get paid for delivering performance. they collect fees from their investors, people like you, and the amount of money they make depends on the size of their assets under management, aum, we call it. which means their biggest

incentive isn't necessarily to do well but what they're really being paid to do is bring in more money from more investors, salespeople for their funds. that's part of the reason why in study after study year after year it had been shown the vast majority of active mutual funds underperform their benchmarks like the s&p 500. if you invest in an actively managed fund, its performance will most likely 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 don't do as well as the benchmark and they charge more. [ boos ] so even if your fund does manage to beat its benchmarks the odds are good any outperformance could be eaten up by management fees and you'll have an underperforming investment. of course, there's some actively

managed funds out there with fabulous managers who can deliver terrific results and i'll tell you how to find them another time. the trouble is when a mutual fund delivers such great results for so long, if the manager is a decent person, they'll stop investing new investments because at a certain point when a fund gets too big it becomes incredibly difficult for the market. that's just the law. so as a general rule, if you invest in mutual funds, don't be in an actively managed one. the freeze too high and the evidence that the bulk of them underperform is too staggering to keep going that way. you know that i think your best strategy is to manage your own portfolio of individual stocks. that's what i talk about night after night on "mad money." for those of you that don't have the time or if your 401(k) plan went let you own them, let me tell you the smart way to invest in mutual funds. you can write this down. a cheap low cast index fund that mirrors the market as a whole, one that mimics the s&p 500. index funds have ultra low fees

and with an s&p index fund you have a vehicle that lets you participate in the strength of the stock market without having to pick individual stocks. this may sound like a real simple solution. don't ever think that. the whole plan of putting your none a fund is to save you the time and effort required to manager your own portfolio stocks. that's why i think it's insane when people start owning multiple mutual funds. by its nature, funds should be diversified. i know there are a lot of sector-based mutual funds and etfs out there but there's really for members like you to have exposure to them. if you're going to play individual sectors, that time would be much better spent picking the individual stocks. as for etfs in most cases these vehicles are for trading not investing. many etfs rebalance everyday and that can take a toll on long-term performance. they're not set up for long-term performance. there are some exceptions like gold, if you're not managing a portfolio and day trading everyday you shouldn't fool

around with these etfs either. here's the bottom line. at the end, the key, is and, 3500 index fund is the bad way to manage your money. better than the best bulk of mutual funds. but an index fund owns everything, the good, the bad, and the ugly. and if you do have 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, don't 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. now i'm looking at my portfolio here and, jim, jim, mine eyes have seen the glory. so i want to get fancier and

perhaps buy some china stocks. however, i'm curious about adr and possible exposure to foreign currency exchange rates. so can you educramer us on that? >> we have the battle hymn of the republic going overseas. i don't know if i want f i want that. but if you want to own individual stocks and the businesses are good i don't care where they are. i don't even care about the currency, the business is that great, the stock will go higher. understand if you're buying adr and it's a european company, for instance, the euro being weakened by central bank issues, you will not do well even if the stock does well so all things being mutual and you don't have a country or continent trying to debase their currency but if they are stay away and stay in the good old u.s. of a which i think a smart way to invest. matthew in new york. matthew. booyah, jim. >> booyah back at you.

>> i'm 23 years old, recent college grad and now the work force and i just started to max out my i.r.a. realizing time is on my side i want to go for an aggressive allocation for growth and take on risks but i'm unsure of how to do that exactly so i want you to give me some suggestions for someone starting out through the retirement investing. how would you do that? >> the fastest young growth stocks, those are -- tend to be found in technology sector but also, of course, in biotech. now don't go too crazy. i'm liable to have one or two stocks of companies that aren't making money, no more than that. but those are the most fertile areas, junior growth stocks, companies that are worth a billion dollars or less, a lot of them that are too small to talk about. one of those, too. 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 too much mutual love

here. picking stocks is still the best way to manage your money but if you don't have time please, please, 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 best path to a healthy retirement based on your income. then protecting your children from student loan debt puts them in a better position to build their future. i'll help you plan for that hefty tuition bill. plus i'm responding to your treats without the 140 character restriction. it so hems me in. stick with cramer. while every business is unique,

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think of it as a way to take more control over your operating costs. and yet another energy saving opportunity from pg&e. find new ways to save energy and money with pg&e's business energy check-up. let me tell you about whether it makes sense for you to use a regular 401(k) or an i.r.a. or for you to go with a roth which i'm sure you've heard before. i know i've talked endlessly to use an i.r.a. and a 401(k) to invest for retirement. i won't beat a dead horse but i get a ton of questions about this. should i put my money in a roth account or regular one? let's start with a roth i.r.a. which anyone can contribute as long as they make less than $129,000 a year. i think 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 a draw, poverty possibly won on points. i've told you how a regular i.r.a. lets you take pre-tax income, invest it then 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 different. with a roth, you make contributions with aftertax income so in other words unlike a regular i.r.a., putting money into a roth won't decrease your tax burden. on the other hand, once your money is in a roth i.r.a., you will never pay taxes on it again as long as your cash remains in the account you don't pay capital gains tax, you don't pay dividend tax, when you withdraw it which you can do without penalty after the age of 59 and a half, you don't pay income tax on your withdrawals. this is fabulous. with a roth you pay taxes now so you don't have to pay any taxes,

income tax 30 or 40 years from now when you retire. there's one more positive point about a roth. after five years you can withdraw the money you've invested, not your gains, just the amount you've contributed and you won't get hit with a 10% penalty which is what happens when you try to withdraw money from a regular i.r.a. which is what happens when you hit 59 and a half. that's different from a regular i.r.a. where you don't pay taxes now and your gains don't get taxed within the account but once you start withdrawing the money every penny you take out 1 taxed as ordinary income which can be have a very high rate. which means when you're trying to decide between a roth i.r.a. and a 401(k) or a regular i.r.a., you're deciding whether it makts more sense to pay income tax now with a roth or once you retire. in other words, you have to figure out whether you'll be in the higher tax bracket or lower one. this is a complicated question and has a lot to do with the specifics of your situation, your career, and simply how old you are.

let me give you a quick thumbnail, for anyone whose marginal tax rate is 25% or less, which is most of america, i think you ought to go with a roth. better to take the hit up front then allow your roth i.r.a. todom pound tax free. for those of you who don't have the time to pick your own portfolio, the smartest 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 bonds but until you retire, stocks should make up the majority of your retirement investments. i've said this before but i'll keep repeating it until they take me off the air because it's so necessary but contrary to conventional wisdom. i want stocks, not bonds until later. how about a roth 401(k), this works just like a roth i.r.a. which means you make contributions and never pay taxes again except because it's a 401(k) plan it has a much higher contribution limit than an i.r.a. for example, the government says the 401(k) contribution for with

the 2015 is $18,000. and there's one other big difference. unlike a roth i.r.a., a roth 401(k) doesn't have any kind of income cap. no matter how much money you earn you can take advantage of one of these as long as your employer decides to give you the option. of course this depends on what you think the future will look like. i'll admit if you believe taxes are inexorably headed higher, that is so the way to go even if you're making a lot of money. but i think that for those of you young people who only become politically conscious under the obama administration, it may seem like there's no way to stop the tide of higher taxes but history says differently and i believe we can close the deficit without substantially raising taxes, that's about as political i'll get 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 low you are your present income, then lower your taxes.

a roth 401(k) or roth i.r.a. lets you pay the rates now and never worry about taxes again for your retirement money so the less you make the more likely it is a roth is for you it's that simple. and don't worry about what could go catastrophically wrong, just worry about making the best choices right now. "mad money" is back after the break. so i can reach ally bank 24/7, but there are no branches? 24/7 it's just i'm a little reluctant to try new things. what's wrong with trying new things? feel that in your muscles? yeah... i do... try a new way to bank, where no branches equals great rates.

so ally bank really has no hidden fethat's right. accounts? it's just that i'm worried about you know "hidden things..." ok, why's that? no hidden fees, from the bank where no branches equals great rates. lately i've been reading stories about the crushing burden of student lobe debt. right now, tens of billions of americans are more than a trillion dollars in student debt. that's an incredibly high figure. and it's not just that it stinks to graduate from college or graduate school 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. now, i'm a big believer in

social mobility which is why i'm coming out here teaching you how to use the stock market because it's the greatest engine of wealth ever created and i want use to use it to make serious money. so for any of you parents or thinking of becoming parents let me just tell you that there are very few things you can do for your children that are better than paying for as much of their college education as you can afford. we know college graduates have a much easier time getting jobs, especially in our current environment where unemployment is way too high and we know they ultimately make more money. of course if i were to make an abe maslow style of financial hierarchy of needs, google that, how could your own retirement be more important? believe me, if you reach retirement age and 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. however, after you've saved enough retirement, then it's time start thinking about college. even if your skid only a toddler, heck, even if your kid 1 just a gleam in your eye, so to speak. the best way to save for college hands down is through what's known as a -- write this down -- 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 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 a 529 savings plan. these run by the states and the rules differ from state to state. a 529 doesn't let you manage between your own portfolio. you pick between a mix of many mutual funds, just like 401(k) plans. this is 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, i'm 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 is you'll see in many of these 529 plans. it owns all the stocks traded on the new york stock exchange and the nasdaq but since its way to buy market cap, the performance will be similar to the s&p which contains the 500 largest companies. what are the ruleers in 529 plan? let's just 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 there. maybe wait a couple days. but any who's read "confession of a street addict" knows i traded through my son's birthing. not one of my finest moments. so they're not tax deductible so

that's after tax income, that's not so great. but once your money is in the 529 you don't pay taxes on your gains so let them compound tax free year after year. it's like a roth i.r.a. except for college rather than retirement. because of federal gift tax laws, you can only contribute $14,000 if you're singing, $28,000 if you're married and final taxes jointly. that's a heck of a lot of money. and your children's grandparent cans contribute to the same 529 plan, too. if you don't have the money, a grandparent can start a 529 with your kid as the beneficiary. for financial aid reasons 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. one of the cool things about a 529 plan is you can front load five year's worth of contributions without incuring the federal gift tax as long as you don't write checks to the plan's beneficiary over the next five years. in other words, a single parent or grandparent could potentially invest $70,000 into a 529 right

from the start or if you're married and final jointly you can contribute $140,000. for the next five years you can't contribute anything without getting hit by the gift tax which you don't want. but once you drop that money into $529, you won't need to make too many more contributions. the key here is that you want to get that money into your kids' 529 as early as possible because the greatest of these plans is all about the power of compounding. remember, you don't pay taxes within the 529 so if you can somehow contrive to contribute $70,000 off the bat and invest that money in a low-cost index fund that mirrors the market, the rule of thumb is that over time you'll make 8% per year. i know stock market is a lot more volatile than that but as a thought experiment, if stocks perform like they have historically you could double your investment in about nine years. so if you start saving right when your skid born, by the time he or she is 18, the value of your 529 plan will double and double again. if you started with $70,000, after 18 years barring a

catastrophe you could new as much as $280,000. that's enough for a fancy expensive private college education and a decent chunk of law school. i know most people can't front load a 529, especially not with the expenses that come raising a kid but it's worth keeping in mind that front loading as much as possible is indeed the best strategy. for grandparent this is may sound kind of grim but your 529 plan contributions won't count towards your estate tax. last thing about saving for college and grad school, any none a 529 that you don't use you can transfer to another relative. we're talking siblings, parents. and if you save this money and your ungrateful kid decides not to go to college, you can withdraw the money but you have to pay taxes on your gains along with a 10% penalty. here's the bottom line, no paying for your kids' college education isn't as perform as providing for yourself. but if you have children and after you've made enough retirement contributions for the year, putting none a 529 college savings plan should be the next

item in your agenda. it's the best way to protect your kids from the crushing burden of student loan debt. "mad money" is back after the break.

holy cow, we've got to get to some of your tweets that you've been sending me at jim cramer mad tweets including ones that are nice and smart. here we go. "i love you, jim." i love you, kenneth egan.

how's that? it's requited. some people call me jack tatum. no, i'm a sweet guy. "why care about short-term hit if you have long-term investment strategy?" amen. how many times have i said i like x, y, z, stock. it goes down that day and people want to burn me in effigy or scalding oil. it doesn't have to be that day. think a little longer term. one year out you get a better tax break. here we have "aside from your own, what other books should home investors have under their belts to help them trade/manage better." "one up on kweet" and "beat the street" peter lynch. you might want to look at some of david darth's book. he taught me a lot at goldman

sachs. up next, "do you ever sleep or did one of your biotechs provide you with clones to assist?" winky face. that presumably means like an emoji thing. no, i don't sleep. now "btw, i am now following your know what your own motto or kwyo. cleaned my portfolio this week. yolo." you only live once, i totally agree with you. here's one "i'm in the market because of you sir. just give the haters a big booyah, keep teaching us what they want to grow." okay, let me give you a 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 am 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. across town.

i like to say there's always a bull market somewhere and i promise to try to find it just for you on "mad money." i'm jim cramer and i'll see you next time. /s

. >> working in a prison is really tough. it is not for everybody. >> when you have gangs involved, if you don't do what you're asked, then you would get beat up. >> the biggest prison in the state of idaho is also the toughest. the idaho correctional center, the i.c.c., was so violent that employees and inmates had a name for the place -- gladiator school. >> and that was because of the assaults. and that's why they called it gladiator school, because of that reason. if you're going to i.c.c., it's