Stocks and Bonds in Roth IRA vs non-tax-advantaged
You should definitely favor holding bonds in tax-advantaged accounts, because bonds are not tax-efficient. The reason is that more of their value comes in the form of regular, periodic distributions, rather than an increase in value as is the case with stocks or stock funds. With stocks, you can choose to realize all that appreciation when it is most advantageous for you from a tax perspective. Additionally, stock dividends often receive lower tax rates. For much more detail, see Tax-efficient fund placement.
"So you are paying taxes on your contributions regardless, the timing   is just different. I am failing to see why would a person get an IRA, instead of just   putting the same amount of money into a mutual fund (like Vanguard) or   something like that. What am I missing? You are failing to consider the time value of money. Getting $1 now is more valuable to you than a promise to get $1 in a year, even though the nominal amount is the same. With a certain amount of principal now, you can invest it and it will (likely) grow into a bigger amount of money (principal + earnings) at a later time, and we can consider the two to have approximately equivalent value (the principal now has the same value as the principal + earnings later). With pre-tax money in Traditional IRA, the principal + earnings are taxed once at the time of withdrawal. Assuming the same flat rate of tax at contribution and withdrawal, this is equivalent to Roth IRA, where the principal is taxed at the time of contribution, because the principal now has the same value as the principal + earnings later, so the same rate of tax on the two have the same value of tax, even though when you look at nominal amounts, it might seem you are paying a lot less tax with Roth IRA (since the earnings are never ""taxed""). With actual numbers, if we take a $1000 pre-tax contribution to Traditional IRA, it grows at 5% for 10 years, and a 25% flat rate tax, we are left with $1000 * 1.05^10 * 0.75 = $1221.67. With the same $1000 pre-tax contribution (so after 25% tax it's a $750 after-tax contribution) to a Roth IRA, growing at the same 5% for 10 years, and no tax at withdrawal, we are left with $1000 * 0.75 * 1.05^10 = $1221.67. You can see they are equivalent even though the nominal amount of tax is different (the lower amount of tax paid now is equivalent to the bigger amount of tax later). With a taxable investment which you will not buy and sell until you take it out, you contribute with after-tax money, and when you take it out, the ""earnings"" portion is subject to capital-gains tax. But remember that the principal + earnings later is equivalent to the principal now, which is already all taxed once, and if we tax the ""earnings"" portion later, that is effectively taxing a portion of the money again. Another way to look at it is the contribution is just like the Roth IRA, but the withdrawal is worse because you have to pay capital-gains tax instead of no tax. You can take the same numbers as for the Roth IRA, $1000 * 0.75 * 1.05^10 = $1221.67, but where the $1221.67 - $750 = $471.67 is ""earnings"" and is taxed again at, say, a 15% capital-gains rate, so you lose another $70.75 in tax and are left with $1150.92. You would need a capital-gains tax rate of 0% to match the advantage of the pre-tax Traditional IRA or Roth IRA. After-tax money in Traditional IRA has a similar problem -- the contribution is after tax, but after it grows into principal + earnings, the ""earnings"" part is taxed again, except it is worse than the capital-gains case because it is taxed as regular income. Like above, you can take the same numbers as for the Roth IRA, $1000 * 0.75 * 1.05^10 = $1221.67, but where the $471.67 ""earnings"" is taxed again at 25%, so you lose another $117.92 in tax and are left with $1103.75. So although the nominal amount of tax paid is the same as for pre-tax money in Traditional IRA, it ends up being a lot worse. (Everything I said above about pre-tax money in Traditional IRA, after-tax money in Traditional IRA, and Roth IRA, also applies to pre-tax money in Traditional 401(k), after-tax money in Traditional 401(k), and Roth 401(k), respectively.) Regarding the question you raise in the title of your question, why someone would get contribute to a Traditional IRA if they already have a 401(k), the answer is, mostly, they wouldn't. First, note that if you merely have a 401(k) account but neither you nor your employer contributes to it during the year, then that doesn't prevent you from deducting Traditional IRA contributions for that year, so basically you can contribute to one or the other; so if you only want to contribute below the IRA contribution limit, and don't need the bigger 401(k) contribution limit, and the IRA's investment options are more attractive to you than your 401(k)'s, then it might make sense for you to contribute to only Traditional IRA. If you or your employer is already contributing to your 401(k) during the year, then you cannot deduct your Traditional IRA contributions unless your income is very low, and if your income is really that low, you are in such a low tax bracket that Roth IRA may be more advantageous for you. If you make a Traditional IRA contribution but cannot deduct it, it is a non-deductible Traditional IRA contribution, i.e. it becomes after-tax money in a Traditional IRA, which as I showed in the section above has much worse tax situation in the long run because its earnings are pre-tax and thus taxed again. However, there is one good use for non-deductible Traditional IRA contributions, and that is as one step in a ""backdoor Roth IRA contribution"". Basically, there is an income limit for being able to make Roth IRA contributions, but there is no income limit for being able to make Traditional IRA contributions or for being able to convert money from Traditional IRA to Roth IRA. So what you can do is make a (non-deductible) Traditional IRA contribution, and then immediately convert it to Roth IRA, and if you did not previously have any pre-tax money in Traditional IRAs, this achieves the same as a regular Roth IRA contribution, with the same tax treatment, but you can do it at any income level." It is really hard to tell where you should withdraw money from. So instead, I'll give you some pointers to make it easier for you to make the decision for yourself, while keeping the answer useful to others as well. I have 3 401ks, ... and some has post tax, non Roth money Why keeping 3 401ks? You can roll them over into an IRA or the one 401k which is still active (I assume here you're not currently employed with 3 different employers). This will also help you avoiding fees for too low balances on your IRAs. However, for the 401k with after tax (not Roth) balance - read the next part carefully. Post tax amounts are your basis. Generally, it is not a good idea to keep post-tax amounts in 401k/IRA, you usually do post-tax contributions to convert them to Roth ASAP. Withdrawing from 401k with basis may become a mess since you'll have to account for the basis portion of each withdrawal. Especially if you pool it with IRAs, so that one - don't rollover, keep it separately to make that accounting easier. I also have several smaller IRAs and Roth IRAs, Keep in mind the RMD requirements. Roth IRAs don't have those, and are non-taxable income, so you would probably want to keep them as long as possible. This is relevant for 401k as well. Again, consolidating will help you with the fees. I'm concerned about having easily accessible cash for emergencies. I suggest keeping Roth amounts for this purpose as they're easily accessible and bear no taxable consequence. Other than emergencies don't touch them for as long as you can. I do have some other money in taxable investments For those, consider re-balancing to a more conservative style, but beware of the capital gains taxes if you have a lot of gains accumulated. You may want consider loss-harvesting (selling the positions in the red) to liquidate investments without adverse tax consequences while getting some of your cash back into the checking account. In any case, depending on your tax bracket, capital gains taxes are generally lower (down to 0%) than ordinary income taxes (which is what you pay for IRA/401k withdrawals), so you would probably want to start with these, after careful planning and taking the RMD and the Social Security (if you're getting any) into account. "Couple of clarifications to start off: Index funds and ETF's are essentially the same investments.  ETF's allow you to trade during the day but also make you reinvest your dividends manually instead of doing it for you.  Compare VTI and VTSAX, for example.  Basically the same returns with very slight differences in how they are run.  Because they are so similar it doesn't matter which you choose. Either index funds and ETF's can be purchased through a regular taxable brokerage account or through an IRA or Roth IRA.  The decision of what fund to use and whether to use a brokerage or IRA are separate. Whole market index funds will get you exposure to US equity but consider also diversifying into international equity, bonds, real estate (REITS), and emerging markets.  Any broker can give you advice on that score or you can get free advice from, for example, Future Advisor.  Now the advice: For most people in your situation, you current tax rate is currently very low.  This makes a Roth IRA a very reasonable idea.  You can contribute $5,500 for 2015 if you do it before April 15 and you can contribute $5,500 for 2016.  Repeat each year.  You won't be able to get all your money into a Roth, but anything you can do now will save you money on taxes in the long run.  You put after-tax money in a Roth IRA and then you don't pay taxes on it or the gains when you take it out. You can use Roth IRA funds for college, for a first home, or for retirement. A traditional IRA is not recommended in your case.  That would save you money on taxes this year, when presumably your taxes are already low. Since you won't be able to put all your money in the IRA, you can put the rest in a regular taxable brokerage account (if you don't just want to put it in a savings account).  You can buy the same types of things as you have in your IRA.   Note that if your stocks (in your regular brokerage account) go up over the course of a year and your income is low enough to be in the 10 or 15% tax bracket and you have held the stock for at least a year, you should sell before the end of the year to lock in your gains and pay taxes on them at the capital gains rate of 0%. This will prevent you from paying a higher rate on those gains later.  Conversely, if you lose money in a year, don't sell. You can sell and lock in losses during years when your taxes are high (presumably, after college) to reduce your tax burden in those years (this is called ""tax loss harvesting""). Sounds like crazy contortions but the name of the game is (legally) avoiding taxes.  This is at least as important to your overall wealth as the decision of which funds to buy. Ok now the financial advisor.  It's up to you.  You can make your own financial decisions and save the money but it requires you putting in the effort to be educated.  For many of us, this education is fun.  Also consider that if you use a regular broker, like Fidelity, you can call up and they have people who (for free) will give you advice very similar to what you will get from the advisor you referred to.  High priced financial advisors make more sense when you have a lot of money and complicated finances.  Based on your question, you don't strike me as having those.  To me, 1% sounds like a lot to pay for a simple situation like yours." If you have just started an IRA (presumably with a contribution for 2012),  you likely have $5000 in it, or $10,000 if you made a full contribution for  2013 as well. At this time, I would recommend putting it all in a  single low-cost mutual fund. Typically, mutual funds that track an index such as the S&P 500 Index have lower costs (annual expense fees) than actively managed funds, and most investment companies offer such mutual funds, with Fidelity, Vanguard, Schwab, to name a few, having very low expenses even among index funds. Later, when you have more money in the account, you can consider diversifying into more funds, buying stocks and bonds, investing in ETFs, etc. Incidentally, if you are just starting out and your Roth IRA is essentially your first investment experience, be aware that you do not need a brokerage account for your Roth IRA until you have more money in the account to invest and specifically want to buy individual stocks and bonds instead of just mutual funds. If you opened a brokerage account for your Roth IRA, close it and  transfer the Roth IRA to your choice of mutual fund company; else you will be paying annual fees to the brokerage for maintaining your account, inactivity fees since you won't be doing any trading, etc. The easiest way to do this is to go to the mutual fund company web site and tell them that you want to transfer your IRA to them (not roll over your IRA to them) and they will take care of all the paper work and collecting your money from the brokerage (ditto if your Roth IRA is with a bank or another mutual fund company). Then close your brokerage account. Assuming you bought the stocks with after-tax money, you only pay tax on the difference. Had you bought he shares in a pretax retirement account, such as an IRA or 401(k), the taxation waits until you withdraw, at which point, it's all taxed as ordinary income. The 401(k) has the advantage that you don't pay any tax until you take it out. That lets the gains multiple. Two examples: If any of your stocks pay dividends, these are directly taxable if you don't have a 401(k). In the 401(k), the full dividends accumulate and are reinvested. If you sell any stocks and get capital gains, they are also directly taxable in a normal account. Having said that, if you don't get any match, I would consider doing a 50/50; put half of your money in the 401(k), in something simple like an index fund, and invest the rest. That's assuming you have an index fund available in your 401(k). "I'll answer your question, but first a comment about your intended strategy.  Buying government bonds in a retirement account is probably not a good idea.  Government bonds (generally) are tax advantaged themselves, so they offer a lower interest rate than other types of bonds.  At no tax or reduced tax, many people will accept the lower interest rate because their effective return may be similar or better depending, for example, on their own marginal tax rate.  In a tax-advantaged retirement account, however, you'll be getting the lower interest without any additional benefit because that account itself is already tax-advantaged. (Buying bonds generally may be a good idea or not - I won't comment on that - but choose a different category of bonds.) For the general question about the relationship between the Fed rate and the bond rate, they are positively correlated.  There's not direct causal relationship in the sense that the Fed is not setting the bond rate directly, but other interest bearing investment options are tied to the Fed rate and many of those interest-bearing options compete for the same investor dollars as the bonds that you're reviewing.  That's at a whole market level.  Individual bonds, however, may not be so tightly coupled since the creditworthiness of the issuing entity matters a lot too, so it could be that ""bond rates"" generally are going up but some specific bonds are going down based on something happening with the issuer, just like the stock market might be generally going up even as specific stocks are dropping. Also keep in mind that many bonds trade as securities on a secondary market much like stocks.  So I've talked about the bond rate.  The price of the bonds themselves on the secondary market generally move opposite to the rate.  The reason is that, for example, if you buy a bond at less than face value, you're getting an effective interest rate that's higher because you get the same sized incremental payments of interest but put less money into the investment.  And vice versa." I don't quite understand your thought process here.  First, in a tax-advantaged retirement account you are NOT allowed to engage in a transaction with yourself.   If you just want to run a business and be able to write off expenses, how is using the self-directed IRA relevant? You can either buy the condo using your tax-advantaged account and rent it out to regular tenants.  Or you buy the condo yourself using your own money and then operate your business so you can deduct business expenses from doing so.  401k's allow you to take a loan out of it, so you can look into that as well.