You are correct that you aren't allowed to deduct the contributions. However, you can leave the contributions in the account as non-deductible contributions, and they will be non-taxable when you withdraw them. For example, when you retire, if the account balance is $20,000 and contains @$20,000 of non-deductible contributions (10%), then 10% of the withdrawals will be non-taxable since it represents money that was already taxed. Non-deductible contributions are tracked on form 8606 and you must keep all your form 8606s as long as you have the IRA, they are an exception to the rule that you can discard most tax forms after 3 or 7 years.
Also, your wife can rollover the money into a Roth IRA after making the non-deductible contribution to a regular IRA, even though she isn't allowed to directly make a Roth IRA contribution due to your income. This is called a "back door" Roth IRA. For this to work, your wife would need to rollover all of her balances in traditional (pre-tax) IRA accounts (prior job retirement accounts don't count because they aren't IRAs even though they serve the same purpose). Any IRA balance that is from pre-tax contributions is taxable as a Roth conversion, but if the only IRA amounts are non-deductible, then there is no additional tax and getting the money into a Roth IRA may have advantages over leaving it in a traditional IRA.
