The Internal Revenue Service is encouraging taxpayers to invest in retirement accounts by giving tax breaks to those who do.

The tax bill due on retirement savings can be significantly less with individual retirement accounts or IRAs.

There are five types of IRAs.

• Traditional — Taxpayers can contribute up to $2,000 per year. The amount that can be deducted on the income tax return depends on the adjusted gross income and whether the taxpayer is covered under an employer-sponsored qualified retirement plan.
• Education — Up to $500 per year can be put away. The money grows tax-free and has preferential tax treatment when distributed to the beneficiary who uses it for authorized education expenses.
• Simplified Employee Pension — This is established and funded by the employer. The employer can contribute up to 15 percent of compensation into a special IRA account. Sole proprietors may establish these plans for their own benefit. These sometimes are used instead of Keogh retirement plans because they have fewer administrative and tax filing requirements.
• Simple — Employer sponsored and administered that allows employees to contribute up to 100 percent, but no more than $6,500 per year, into an IRA.
• Roth — These contributions are not deductible when funds are contributed, but the earnings accumulate tax-free and remain tax-free upon distribution. To be eligible, the adjusted gross income must be less than $95,000 for singles and $150,000 for married couples, as of December 2000. Funds cannot be withdrawn within the first five years without a penalty.

It is always recommended that taxpayers consult a tax specialist before making any decisions.