Many investors consider a 401(k) to be the holy grail of retirement investing, but Jim Cramer thinks it has some serious flaws.
"Your 401(k) is important, but it has its downsides — plenty of them," the "Mad Money" host said.
While Cramer does think that it is important to contribute to a 401(k), he is not part of the crowd that thinks you should max out the limit.
A few downsides of a 401(k) are that some people complain about high management fees and administrative costs. For Cramer, the worst part about the 401(k) is the lack of control over his money and lack of choice in what he can invest in.
"I believe that the best way to invest, as you know, is to buy a diversified portfolio of individual stocks and do the homework on each one of them — ideally one hour per week per stock — so you know when it is time to buy more, when it is time to sell something, and when it is time to sell everything," Cramer added.
The problem is that most 401(k) plans don't give you the option. Instead it will let you choose between a couple of stock and bond funds, and Cramer is generally not impressed with the selections.
Cramer's recommendation is to contribute as much money to your 401(k) that is needed to get the full company match, and then stop. At that point, the rest of retirement savings should go into an IRA until that is maxed out.