If your employer offers a defined contribution plan, such as a 401(k) or 403(b), sign up and maximize your contributions as soon as you can. If your employer matches some or all of your contributions, put in at least enough to get all of the matching dollars. It's free money; don't pass it up.

Contributing to an employer plan provides a double bonus. First, Uncle Sam will subsidize your retirement savings by deferring income tax on the amount you save. So for every $1 you contribute to your account, your take-home pay may be decreased by only 70 cents or so. Second, your investments grow tax-deferred, giving a boost to your long-term returns. To top it off, because the money is taken directly out of your paycheck, you won't be tempted to spend it.

Need convincing? Let's say 2 people invested in the same mutual fund, but one invested through a Vanguard® Roth IRA (where returns grew tax-free*) and the other used a taxable account.

Each investor contributed $2,000 annually to the hypothetical account and had an 8% return after expenses. A combined state and federal income tax rate of 30% was imposed on the total return of the taxable account each year. Both investors reinvested interest, dividend, and capital gains distributions. What were the results after 40 years?

Despite identical investment returns, the Roth IRA grew to $559,562 -- that's $263,800 more than had accumulated in the taxable account.

*Most retirement plans are tax-deferred, not tax-free. Withdrawals of earnings from a tax-deferred account such as a traditional IRA or an employer-sponsored plan would be subject to tax as ordinary income. Typically, you can't withdraw from a traditional IRA without paying income tax plus a 10% federal penalty tax until you reach age 59½.