Non-Deductible Traditional IRA?

My wife and I are both Government employees who annually max out our Thrift Savings Plan (TSP) contributions. Our adjusted gross income exceeds ROTH IRA limitations. Is there any merit funding a non-deductible traditional IRA? If so, would we be able to convert to a ROTH IRA in 2010? Or should we just continue to fund our taxable investment account?

TAD,

It is good that you are maximizing your contributions to the Thrift plan.

Contributing to a non-deductable TIRA is a good idea. You will have tax deferred growth (hopefully) from your investments. When you contribute to the non-dectable IRA, be sure to complete form 8606.

And yes, after 2009 you can do a conversion of your Traditional IRA money into a ROTH IRA. You will need to pay income only on the amount that exceeds your contribution.

A word of caution. If you have any deductable IRAs, the value of those IRAs are pro-rated with your non-deductable IRAs when you make your conversion to the ROTH. Your conversion will part after tax and pre-tax money. The deductable IRA will increse the amount of pre-tax money you are converting.