Nondeductible IRA Contributions

To the extent that you can't meet the requirements for deductible IRAs or Roth IRAs, you may still make a nondeductible contribution to an IRA.

However, your total annual contributions for 2007 to any type of retirement IRA may not exceed $4,000 ($5,000 if age 50 or older), increasing in 2008 to $5,000 ($6,000 if age 50 or older). After 2008, the contribution amount will be indexed, in $500 increments, based on the rate of inflation.

Just be sure that whatever you do, you don't mix deductible and nondeductible contributions in the same account. The earnings on nondeductible contributions will still accumulate on a tax-deferred basis, and when you make withdrawals from your account, you'll be able to receive your original contributions (but not the additional buildup in value over the years) tax-free.

To report nondeductible contributions, you must file Form 8606, Nondeductible IRAs, with your tax return.

Warning If you do decide to make nondeductible IRA contributions, you should be aware that when you make withdrawals from the account after retirement, every withdrawal will be treated as if it included both taxable and nontaxable amounts. The computations of what percentage of each payment is nontaxable can become quite complicated, and you may need the assistance of an accountant or tax advisor to figure them out.