Is there a reason to open Tradiational IRA and Roth IRA outside of your 401(k)?

It seems like it work like this? If your goal is to pay less tax now because tax bracket is high, and pay tax when you retire, then go for the "pre-tax" contribution into the 401(k). And you can contribute into your Roth 401(k) as well, which is "after tax". But if you do that directly, it will "eat into" your $19,500 per year limit, so people usually would contribute into "after tax" first, and then covert it the same day or next day to Roth 401(k), which is called the "backdoor" or "mega backdoor". Now, this portion is already taxed at your current high tax bracket, but at least when you retired and in some years you may have high tax bracket too, but if you take money out from this "Roth 401(k)" portion, then you know it will be entirely tax free. So it may be good to have a little bit money in Roth 401(k) so that you can have some flexibility. Now then, why would you want any outside Traditional IRA and Roth IRA? The Roth 401(k) can allow you to have $50,000 or $60,000 or so already, so unless you reach that amount, you really have no reason to have any outside IRA. But I think some reasons are: (1) You want to be able to put money in any time you want, instead of waiting for your paycheck every two weeks. (2) You want to try out different brokerages, such as Charles Schwab, E-Trade, Robinhood, Merrill Edge, Interactive Brokers, so you can actually open up accounts in multiple of them, and try out their service and research capabilities. And you can contribute $2000 to Charles Schwab, $2000 to E-Trade, etc. But usually, since you are already doing 401(k) pre-tax contribution, the Traditional IRA can still let you contribute money in, but the IRS won't let you "deduct" from your salary to save tax any more, so that totally defeats the purpose of a Traditional IRA (pre-tax IRA). At the same time, if your wage filing as single status is more than about $135,000, then now you cannot contribute to Roth IRA either. Then there is this way about contributing to Traditional IRA first, and then the same day or next day, convert it to Roth IRA, and we can put $6,000 in. So we can put $2000 in Charles Schwab, $2000 in E-Trade, and $2000 in Robinhood. But we will end up with total of 6 accounts: 1 for Traditional IRA, 1 for Roth IRA, so 2 accounts for each brokerage. And I think one good thing is, you can still do it before April 15 the following year to count towards the previous year. This year, it is until July 15 due to the coronavirus situation we have. But I guess counting towards past year and this year makes no difference, if we don't really max out the $50,000 or $60,000 limit in the Roth 401(k) any way. One big advantage of money in the pre-tax, after-tax, 401(k) or IRA, is: if you buy and sell and buy and sell stocks, next year you have to report all the gains and loss in Schedule-D, but if they are in your 401(k) or IRA account, you can totally forget about reporting them. As they can be bought or sold and keep on gaining money without needing to be reported. The only time it is reported, is when money goes into the 401(k) or IRA account, and when money is taken out. What happens in between (even during 20 or 30 years), are not to be reported (which is the way they work by design). Does this pretty much sums up how 401(k) and IRA work? It is actually quite complicated... and initially, what is said from one customer service representative might be different from another representative. But once you know how it works, it is somewhat simpler. #investment #retirement #401k #ira #personalfinance #stock