Money you contribute to an IRA but can not deduct forms a non-deductible IRA. You still get the benefit of tax-deferred buildup but you won’t get an immediate tax saving.
On the one hand, tax deferral is always welcome. On the other hand, funding a non-deductible IRA may be a hassle because of the record-keeping burden.
Part of each withdrawal from a non-deductible IRA is tax-free. However, you must keep track for many years to show what portion of your IRA withdrawals are taxable and what portion is tax-free.
To keep track, you report non-deductible IRA contributions each year on Form 8606, which you file with your tax return. You must hold onto these forms indefinitely because you’ll need them when you take money out. If you contribute to a non-Roth, non-deductible IRA, keep deductible and non-deductible IRAs in separate accounts, to help keep your records straight.