Off Topic: When IRAs are Not an Option

Open an investment account and invest in tax-efficient assets. In a taxable account, dividends and capital gains are your enemy—the taxes levied on them (especially in high marginal income tax brackets) reduce the compounding effect of your return. Buy and hold is the optimal strategy.

Total stock market funds (e.g., VTI) are a classic tax-efficient equity investment. Municipal bonds are also extremely tax-efficient because the coupons are tax-exempt.

Assuming you are also ineligible to contribute to Roth IRA, the current tax code permits you, in certain situations, to rollover non-deductible money from a Traditional IRA to a Roth IRA. This is especially advantageous if you have no other IRA accounts as the conversion is completely tax-free. Google "back-door Roth IRA" for additional information.

Probably the most important advice I can give is to not seek financial advice from an internet bulletin board. Consult a fee-only financial planner (i.e., one that does not want a percentage of your assets) and develop an asset allocation and long-term investment strategy. The NAFPA website can help you find one locally. If you find yourself asking basic questions about investing, it is worth the money.

Thanks MZ.

To add to what mazzee said...

Each individual can contribute $5000 to a traditional IRA each year (including making one for 2010 through April 15). Starting in 2010, anyone has been allowed to convert from traditional IRA to Roth IRA. The rules for taxes is that if, say, 37% of your aggregate traditional IRA funds are pre-tax (e.g., rolled over from a 401k, or funds for which you took a deduction in previous years, or gains made within the IRA) and the rest is post-tax (e.g., non-deductible contributions), then you pay 37% on each dollar you convert.

So, if you have $0 in traditional IRAs right now, and you contribute $10K w/o taking a traditional IRA deduction, your traditional IRAs have $10K in them with $0 of that pre-tax. You can convert the whole thing to Roth tomorrow and not pay any taxes on the conversion.

If you happen to have pre-tax traditional IRA funds, then converting that to Roth IRA is another way of boosting your retirement funds. Say you have $10K in an traditional IRA that is going to become $100K in the future, and you have $4K of money on the side. Choice #1 is to keep the IRA traditional, pay taxes on the $100K later, and grow the $4K in a non-retirement account separately. Choice #2 is to use the $4K to convert the $10K to Roth now, and then you end up with $100K later with no tax obligation. Obviously tax rates now vs. in the future make a difference, but you effectively get something like 50% more in you retirement account by converting.