However there is one major claim that he advocates that I don't necessarily agree with and can be very damaging for certain types of investors.
Cramer suggests that whenever you change employers, you should immediately roll over your 401(k) to an IRA because it gives you many more investment choices than a 401(k) which may have very limited options.
The problem with this advice is that it assumes that more options is better. This is definitely not the case. I would argue that more options is actually very detrimental for the average, less-educated investor.
Aside from not knowing what to invest in, the likely risk of falling victim to fraud increases significantly. There have been so many instances where people (especially elders) have been targeted by unscrupulous brokers and convinced using the same argument that "more investment choices is better", that these unwary victims lost more money by switching and buying into high commission investments like annuities and other "latest and greatest" fad funds than they would had had they stuck with their original 401(k) options .
The risk of fraud is so great that the SEC published an Investor Alert reminding folks of the danger associated with this type of fraud. While the Investor Alert specifically focused on "Self Directed IRAs", the truth is Traditional or Roth IRAs are equally susceptible to increased fraud because of the limitless number of options and very convincing sales brokers constantly trying to push investors to buy into these "so-called better investments". Bloomberg news even published an interesting article about how the 'Rollover Boom' has enriched more brokers than the actual investors. This is why I believe all non-savvy investors should really think carefully about whether or not rolling over their 401(k) to an IRA makes sense for them.
OK, you are probably thinking by now that you are smarter than the average, less-educated investor and therefore won't be a likely victim of fraud. Cramers advice of always rolling over your 401(k) to an IRA may still be a bad decision for you if you are, or expect to be, a high income earner looking to take advantage of the Backdoor Roth IRA .
Assuming you are familiar with this "contribution loop hole" which high income earners can use to take advantage of contributing to a Roth IRA, converting a Traditional 401(k) to an IRA will likely subject you to the Pro Rata rule making it much less advantageous for you to do a back-door Roth in the first place. The reason for this is because the IRS will force you to pay taxes on the portion of your non-taxed contributions in your IRA that you converted from your Traditional 401(k) each time you convert any portion of non-deductible Traditional IRA funds to a Roth IRA. And since the amount most people have in their 401(k) is pretty significant (especially for high earners), it will render the use of a backdoor Roth less advantageous than if you had no deductible IRA (by not rolling over a Traditional 401(k)) and can do a full non-deductible contribution and a full conversion to a Roth IRA tax free. Sure, you can still convert your IRA back to a traditional 401(k) to fix this, but you are likely to incur some transfer fees and additional headaches/time to do all the paperwork. In addition, if you are no longer employed by a company that offers a 401(k), you may not even be able to correct this and in the interim, the taxes get more complicated if you insist on taking advantage of the Backdoor Roth.
Even if you do not believe you will ever expect to do a Backdoor Roth IRA contribution, here are 7 more reasons from Forbes that you should consider before you blindly follow Cramer's advice for converting your 401(k) to an IRA.