What is one key characteristic of nondeductible contributions in an IRA?

Nondeductible contributions to an Individual Retirement Account (IRA) are characterized by the fact that while they are made with after-tax dollars, they indeed become taxable upon withdrawal. This means that any earnings on these contributions will be taxed as ordinary income when you take distributions from the IRA. However, the contributions themselves are not treated as taxable since you've already paid taxes on that money when you made the contribution.

This is key to understanding how nondeductible contributions impact tax planning and retirement savings. They allow individuals to contribute to an IRA even if they have already maxed out their deductions for the year due to income limitations, yet they do keep in mind that they will eventually face tax liabilities upon withdrawal of the funds.

The notion that they can be deducted in the next tax year, that they cannot be contributed after age 70½, or that they grow tax-exempt misrepresents the nature of nondeductible contributions or reflects limitations relevant to traditional deductible contributions that don't apply in this scenario.