How cool would it be if you were a millionaire when you retired? It can happen…

How cool would it be if you were a millionaire when you retired? It can happen… As a young adult with a lot of time before retirement, you have the ability to get an early start toward saving for that Malibu beach home where you'll be kickin' back in a few years.

By taking advantage of something called an IRA, you can make yourself a millionaire by the time you retire. An IRA is short for Individual Retirement Account, which is a retirement account that allows your money to grow tax-deferred until you retire. Rather than paying for taxes on your investments each year, you pay taxes only when you take the money out, which you can do after age 59.

As an added value, the contributions you make to your IRA are tax deductible. If you earned $40,000 per year and contributed $3,000 of your salary (the maximum contribution) to your IRA, you have to pay taxes on only $37,000 of your income. You save paying taxes on the $3,000. Another IRA program that goes one step further is the Roth IRA. With a Roth IRA, you pay the income taxes up front, leaving your money to grow tax-free until retirement.

You might be thinking, "Great - but why should I care now?" Because the longer you wait to open a Roth IRA, the less time your money has to compound, and the less money you'll be walking out of the bank with when you cash in your retirement chips. Check out this example and see what happens by starting a Roth IRA now.

You're 20 years old and in college with a work-study job. You can't save a whole lot of money because of tuition payments, but you manage to put $25/month into your Roth IRA, which pays an average of 12 percent per year. You're not making much money now, so you're in the 10 percent tax bracket. After you graduate, you accept a job that puts you in the 27 percent tax bracket and you contribute $3,000 per year until you retire at the age of 65. Upon retirement, you will have contributed a total of $129,600, but you will have a hefty nest egg of $1,084,079 after taxes and inflation! You will be a millionaire.

A lot of people don't think they need to start saving for their retirement now. But there are obvious advantages to opening a Roth IRA while you are young.

Here are a few of the more notable advantages of a Roth IRA:

You have time on your side. The longer you keep your money invested, the more time it will have to compound, which means dramatically higher savings. Using the above example, had the person not started saving until age 26, he/she would have had only about $806,000 at retirement a difference of over $275,000 just by starting six years later! Imagine if you waited until you were 30 or 35 to start.

IRA contributions are taxed at your current tax rate. Because young adults usually don't have high incomes, you'll likely pay just 10 percent in taxes. So even if you are in the 30 or 35 percent tax bracket when you retire, you will have paid only 10 percent in taxes.

The money can be used toward your first home. While Roth IRAs are best used for retirement, you can also withdraw money for the principal on your first home without paying taxes or penalties.

Roth IRAs are great investment vehicles for people to take advantage of while they're young. But before opening one, be sure you will stick to the mindset that this is a long- term investment that should be used only for retirement. Once you set up your Roth IRA, you can sit back, relax, and start imagining what that mansion in Malibu is going to look like.