If you’re just launching your career, retiring more than four decades from now is probably the last thing on your mind. But if you’ve put it front of mind and are already setting money aside for retirement, congratulations! You’re well on your way to financial freedom.

That’s because you’ve taken advantage of the most powerful, wealth-building asset on your side: time. With the power of compound interest, your contributions will earn more than those who wait until later in life to start saving for retirement. That’s why it’s key to start saving for the future as soon as you can.

Of course, wanting to save for retirement and doing it are very different. When you’re just getting started, it’s easy to feel intimidated by the confusing alphabet soup of terminology — 401(k), 403(b), IRA, Roth, HSA and so on. But don’t let jargon throw you, it’s much easier than meets the eye.

Here’s how to save for retirement if you’re just getting started.

How to save for retirement

To keep things simple, let’s focus on the two most common ways to save for retirement.

First, there’s your employer’s retirement plan. At most companies, the plan will be called a 401(k). If you work for a nonprofit, government agency or other eligible groups, your plan may be a 403(b) instead. In addition to traditional 401(k) or 403(b) plans, your employer may offer a Roth 401(k) or even a pension.

Second, is a personal retirement account. Most people are eligible to open a traditional IRA or a Roth IRA on their own (although Roth IRAs have income restrictions). If you participate in a high-deductible health insurance plan, you might choose to open a Health Savings Account (HSA), which can be a great way to save for medical costs during retirement.

How your employer’s retirement plan works

Most large U.S. employers offer employees the option to participate in a company-sponsored 401(k) plan. As a participant in your employer’s plan, you instruct the business to funnel a specified percent from each paycheck directly into your 401(k).

With a traditional 401(k), those contributions are taken out on a pre-tax basis – the taxman doesn’t touch those funds before they reach your account. However, when you withdraw money from a 401(k) in retirement, you’ll pay income taxes at that point on both the contributions and your earnings.

Some businesses offer a Roth 401(k) plan that you can choose instead of, or in addition to, the traditional 401(k) plan. Unlike the traditional 401(k), contributions to a Roth 401(k) are made after the IRS gets its. However, you won’t pay a penny of income taxes when you withdraw money from the Roth during retirement.

Many companies incentivize participation in their retirement plan by matching employee contributions up to a certain amount – it's arguably the best feature of a 401(k) plan. If your company, for example, offers a full 6 percent match, it will match every dollar you contribute up to 6 percent of your salary.

Some employers enroll you in a plan by default when you’re hired, while others require you to fill out a quick form with HR or online. Once you’re in the system, simply elect how much of your salary you’d like to funnel into the plan (we suggest at least as much as your company’s match, if offered). Then, choose which of the available options you want to invest in. If you don’t want to think too hard about how to rebalance your investments over time, a target-date retirement fund may be a good option. You pick the year you think you might retire, and the fund will make investments and rebalance your portfolio based on that target date.

How a personal retirement account works

A 401(k) plan is offered through an employer, so your ability to contribute to it ends if you change jobs (although you can take your money with you). However, you always have the option of opening your own retirement account. In general, these accounts are traditional IRAs and Roth IRAs.

To open a retirement account, fill out an application through a bank, credit union or brokerage firm that offers them. Once you’re approved, transfer money to your retirement account, choose investments, and buy and sell as you wish.

Once your account is setup, you can contact your HR department and request a certain dollar amount from each paycheck be routed into your new account (just the way you route money to your checking account). This is an easy way to automate your savings and ensure you stay on track to reach your goals.

With a traditional IRA, you enjoy a tax deduction for every dollar you contribute. As with a traditional 401(k) plan, however, you’ll pay income tax on the amount you withdraw from your IRA during retirement. And watch out for the fine print: the IRS limits your tax deduction under certain circumstances.

With a Roth IRA, you pay taxes now on the amount you contribute. However, you’ll be able to withdraw your contributions and their earnings tax-free when you retire. Again, review your eligibility requirements, as high-income households may be restricted from contributing to a Roth IRA account.

How to assess the right retirement savings option for you

Generally, if your employer offers matching contributions, it’s a good idea to grab that money first (because remember, that’s free money toward retirement for you). Once you max out the company match, you can consider additional options.

Look at the investments included in your company’s 401(k) plan. Typically, you’ll be limited to a few dozen funds. Examine their quality and the costs (expense ratios) associated with each one. If you’re happy with your options, it might make sense to keep your investments in one place by contributing solely to your 401(k).

But if you’re looking for more choices, a personal retirement account will likely grant you access to more investment options: index funds, mutual funds, exchange-traded funds, bonds and more. While this could mean better returns and lower fees, managing a personal retirement account will require a more hands-on approach, unless you’re working with a financial pro who can help manage your investments.

Here’s another tip: Mix it up. Consider contributing to your retirement on both a pre- and post-tax basis so you’ll have income that will be both tax-free and taxable in retirement. This is called tax diversification, and it gives you more control over how you want to withdraw your money in retirement, and the amount you could owe the IRS.

If the path forward is still a little foggy, invest in a sit-down with a financial planner or tax professional. The personalized advice you receive can help you figure out how much to put away and map out a savings plan that meets your individual goals for the future.

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