Cramer: Ugly truth about your 401(k)

(Click for video linked to a searchable transcript of this Mad Money segment)

Lots of people say it's smart to max out your 401(k) plan. Jim Cramer isn't one of them.

It's something the "Mad Money" host has talked about from time to time over the years, but the issue again landed front and center after a viewer sent Cramer a Tweet asking "should I max out my 401(k) or cut it back and do more in the stock market separate from my 401(k)?"    

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"As much as I like the tax-favored status of 401(k) plans… they  can be a real mixed bag, with a couple of really great features, and a lot of bad ones, too," Cramer replied.  

And those bad features are why Cramer thinks there are better places for your retirement money.

"401(k) plans often carry fees that will eat away at your returns, year after year. Sometimes those fees  are almost totally hidden from you."

On top of that, Cramer takes issue with the number of choices offered by most 401(k) plans; they're limited and, typically, you have little if any control over them.

Therefore, Jim Cramer believes an is a better tool for retirement planning.

That's because in an IRA you can actively manage your money by picking stocks, and Cramer believes individual investors can outperform their professional counterparts by putting money to work in five to ten stocks of companies that are well managed, leaders in their industry with solid fundadmentals and a good balance sheet.

That's the path to prosperity that Cramer advocates so enthusiastically on "Mad Money."

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However, before you turn your back on the company 401(k) plan all together – Cramer said there is a caveat  And that is, If your employer matches your contribution up to a percentage of income, then he says a 401(k) deserves your attention.

Largely that's because the return on investment is 100% – and that's before any return that the fund generates.

"I'm a big believer in not turning down free money," he said.

But only put as much money into the 401(k) as your employer will match. "Then, the rest of your retirement investing should happen in your IRA," said Cramer.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com 

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