Are You “Mad” At Your 401K
As a company we like to keep things lite in the office given the nature of our work so from time to time we follow Jim Cramer. I mean this guy is great entertainment, and always good for a few laughs. One of his recent rants on Mad Money was about the so called scam of 401k’s. (here is the link to the article http://www.cnbc.com/id/48784171 ).
After reading the article, mad man Cramer does make a couple of valid points, that most company plans are not that great given the high fees, administration costs, and sometimes bad choices for investments. However he is quick to point out the tax benefits and possibility of free money from a company match. His suggestion is to contribute to the 401k plan until the company match is maxed out and then make contributions to an IRA where you have greater flexibility with the investment choices.
This sounds great and is fundamentally correct but Mr. Mad Man forgets that most participants in 401k plans will never achieve maxing out the company match let alone funding a separate IRA. But let’s play along with Cramer’s suggestion and the participant is maxing out the company match and starts contributing to an IRA, how many of them will know what to buy in the IRA? His suggestion is dividend paying stocks, again great point but the average American will not do this.
Here is our suggestion, if you are an advisor that works with 401k plans you have the opportunity to bring tremendous value to your client by showing them that you can provide every participant with specific unbiased advice for their 401k plan and also be available for expert advice on outside investments like an IRA. Maybe this time people should really listen to Cramer because in this instance the Mad Man is not too far off.
RJ20's Online Participant Advice & Financial Planning Blog 
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