There are few surefire ways to become a millionaire. You could try your luck on “Deal or No Deal.” Maybe marry a sugar daddy (or mama). Or you could grow 10 inches, develop a killer jump shot, and cash in with an NBA contract.

Those all sound pretty fanciful. The smartest thing to do if you want to build a good retirement nest egg is to save, and save early. A good rule of thumb: “Pay yourself first.” Even if you can only set aside a little money, it’s wise to get into the habit.

Thankfully, there are excellent tools that can help shape your retirement savings strategy, such as individual retirement accounts, more commonly known as IRAs. By investing early in an IRA, your nest egg can grow into a million dollars—or more—by retirement age.

The reason early savings add up is because of the magic of compound returns. Compounding works by taking the returns you get off your original contribution and reinvesting them year after year. Over time, your money grows exponentially.

For example, if you invest $1,000 when you are 20 years-old, add another $1,000 every year after, and make an average 8% return, you will have $301, 505.56 in your portfolio at age 60. If you start the same investing regimen when you are 30, you will only have $132, 408.52 in your portfolio at age 60. The difference is much greater than the $10,000 more you invested. Increase these numbers a bit and we’ll be talking about millions instead of hundreds of thousands of dollars. The lesson is that early investments pay greater rewards in the long run. Otherwise, you’ll be scrambling later in your career to catch up.

Before you start dreaming about retiring onto easy street, let’s cover the basics. An IRA is a tax-deferred retirement account that allows you to save money for when you hit retirement age. The IRS caps how much you can deposit each year. For 2009, you cannot exceed $5,000 in IRA contributions, or $6,000 if over age 49. You can arrange to have contributions drawn from your paycheck each month, or deposit the max in one lump sum. It’s OK to miss a deposit or two. You can freely contribute up until the date your tax return is due for the previous year (usually April 15).

IRAs operate similarly to 401ks in that you decide how your money is invested. You can put your money into almost anything, except for life insurance or collectibles like antiques or stamps. As usual, we recommend a diversified portfolio of cheap index funds—they’re low risk and provide the comfort of consistent returns.

Typically, IRAs are established independent of your employer, although more and more companies are sponsoring IRAs as part of their benefits package. You might want to open an account as a supplement to your company’s 401k plan. If you are self-employed or a small business owner, IRAs can be an effective way to squirrel away cash for retirement.

You can create an IRA at most financial institutions and online brokerages, from Fidelity to Schwab to Vanguard. The IRS also publishes a useful breakdown of the different IRA types and what to look for in a broker.

Want to Know More?

• Should You Invest in an IRA?
• Where Can I Set an IRA Up?