• IRAs build nest eggs for retirement.gold eggs image by Chepko Danil from Fotolia.com
  
  Individual Retirement Accounts (IRAs) save tax dollars and build money for retirement using earned income. To illustrate, a Roth IRA can offer a 14.6 percent tax rate, after 20 years of investment growing at 5 percent annually, even when the original after-tax contributions are taxed at 25 percent. The U.S. Internal Revenue Service (IRS) sets annual income limits that are used to specify eligibility requirements and qualification for tax deductions on IRA deposits. Each type of IRA has different income restrictions; for example, in 2010, single tax filers with annual income of more than $120,000 are ineligible to make Roth IRA contributions.
  
  

Rules

• Title 26, Subtitle A, Chapter 1 of the U.S. Code outlines statutory law governing Individual Retirement Accounts. The IRS implements this law and the legislation enacted thereafter through rules and regulations. For example, according to the Phoenix Companies, Inc., a financial planning corporation, an indirect rollover of an employer retirement account to an IRA is subject to mandatory tax withholding as high as 25 percent. This can be avoided through a direct rollover from an employer sponsored account, to the firm at which the IRA is opened.
  
  

SIMPLE IRAs

• Savings Incentive Match Plan for Employees, or SIMPLE IRAs, are tax-deferred financial instruments that can be rolled over after two years. These IRAs incur a withdrawal penalty of 10 percent tax before the account holder reaches the age of 59.5. Contributions for SIMPLE IRAs are periodically adjusted, and were $11,500 for the 2010 tax season, not including the $2,500 catch-up contribution. If withdrawal of funds is made within the first two years of involvement with the account, there is a 25 percent tax penalty.
  
  

Roth IRA

• A Roth IRA may be the right financial choice for a retirement puzzle.puzzle dollar image by ktsdesign from Fotolia.com
  
  Kiplinger's financial magazine has stated Roth IRAs are the best IRA overall, in part because there are exemptions to early withdrawal penalties for home and education costs. The tax-exempt retirement income from a Roth IRA applies to withdrawals made after the qualifying age of 59.5, provided the account has been open for five or more years. Contribution limits are lower for Roth IRAs than with SIMPLE IRAs, but are also periodically changed. In 2010, the regular annual contribution limit was $5,000. Funds within a Roth IRA do not have to be withdrawn after age 70.5.
  
  

Traditional IRA

• Withdrawals are required for traditional IRAs after the account holder reaches 70.5 years of age. This age can change with contribution limits as regulations adjust for economic changes such as inflation. Non-converted traditional IRAs are taxable within the tax bracket of the recipient. Early withdrawal penalties also apply. The IRS does not allow rollovers of traditional IRAs to SIMPLE IRAs. Persons with incomes above IRS limits for Roth IRA participation may still participate in a traditional IRA, however the tax deductibility is eliminated after a certain income level is reached. In the 2010 tax year, this amount was $66,000 for single tax filers.