The great thing about IRAs and 401(k)s is that they allow your money to grow faster than it would otherwise. That’s because these retirement plans don’t require you to pay tax on the earnings while your investments are growing. (Unlike a bank account, in which you need to pay tax on the interest you earn.) When money is able to grow free from tax for many years, it grows exponentially. In financial circles, tax-free compounding has been called the eighth wonder of the world. (Financial types don’t get out very much.)

If you have a 401(k) at work, put as much as possible into it. The maximum before-tax contribution you can make to a 401(k) this year is $15,000. (Your maximum may be less, depending on your situation, so check with your company benefits office.) Many companies match the amount you contribute, up to a set limit. Generous employers may offer a dollar-for-dollar match—up to 3% or more of your salary. That’s an immediate 100% return on your investment. Clearly, a great deal.

An IRA is a tax-favored retirement account that you set up yourself. Whether or not you have a 401(k), make sure you open an IRA. Here’s the deal: Basically you can contribute up to $4,000 a year to this account. Because IRAs enjoy special tax status, your money will grow faster than it could virtually anywhere else. If you put the maximum into your IRA each year starting at age 24, for example, you could have over $1,000,000 by the time you retire. Not too shabby.

There are two main types of IRAs: Traditional IRAs and Roth IRAs. The difference between them is in the type of tax breaks they offer. For most young people, Roths are the most appealing, but there are exceptions.