• An IRA can be an excellent retirement vehicle.Cash image by Greg Carpenter from Fotolia.com
  
  Investing in an IRA can be an excellent way to save for a secure retirement, but you need to follow the rules carefully. The IRS has established these rules to allow eligible workers to put aside money and enjoy a significant tax break, but only those who follow the rules can take advantage of these benefits.
  
  

Earned Income

• Not all income can be put aside and protected from taxes by using an IRA. Only earned income is eligible for an IRA contribution. Unearned income, including capital gains, interest and dividends, does not count. In order to make the maximum IRA contribution for a given tax year, you need to have earned income equal to or greater than the amount of the contribution.
  
  

Contribution Limits

• Investors are permitted to put money aside for retirement, but only up to the annual limits imposed by the IRS. These contribution limits change from time to time, but the limits for 2010 are $5,000 per investor. The one exception to this rule is for investors 50 years of age and older. Those investors can put aside an extra $1,000 under the catch-up provision.
  
  

Withdrawal Age

• IRA plans are designed to provide for a worker's retirement; therefore, investors are not permitted to withdraw money from their accounts until they are at least 59 1/2 years old. Withdrawing the money before age 59 1/2 can result in a penalty of 10 percent imposed by the IRS. In addition, the money withdrawn from the IRA is subject to ordinary income taxes at the investor's current tax rate.
  
  

Required Minimum Distribution

• While IRA holders are entitled to start withdrawing the money in their IRA accounts at age 59 1/2, there is no requirement to do so until those individuals reach the age of 70 1/2. After that milestone is passed, IRA investors must begin taking required minimum distributions from their account. The amount of the required distribution varies, since it relies on a formula that includes the age of the investor and the balance of the account. The IRS publishes a chart detailing the required minimum distribution.
  
  

Roth IRAs

• Roth IRAs differ from traditional IRAs because contributions come from after-tax dollars, but you will owe no tax when you start withdrawing funds upon retirement. You're generally better off with a Roth IRA if you expect to be in a higher tax bracket when you retire. Unlike traditional IRAs, a Roth IRA requires no minimum distributions when you turn 70 1/2, and there are more ways to withdraw funds without incurring penalties. To qualify for a Roth IRA, your adjusted gross income can't exceed $120,000 for singles or $177,000 for married people filing jointly.