Roth IRA

The best place for a young investor to start is with a Roth IRA.  It uses after-tax income (meaning taxes are already taken out of your paycheck) to invest. 

For investors under 49 years of age (that would be you)

    2007 maximum contribution limit is $4000

    2008 maximum contribution limit is $5000

If you open a Roth IRA account with a brokerage, you can put in your contribution and the money will grow tax-free until you pull it out when you retire.  Since you've paid taxes on the money going into the Roth IRA, you don't need to pay taxes when you pull the money out when you retire.  

A Roth IRA can be opened with any financial institution that supports IRAs.  For instance, Fidelity, Vanguard or any of the brokerages can assist you in opening an account.

You also have until April 15th of the following year to declare which year a contribution was made for.  For example, you could contribute money into a 2007 Roth IRA up until April 15th, 2008. 

The money you put into the Roth IRA can be withdrawn for emergency purposes, for buying a home, or paying for further education. However, if you take the money out haphazardly without realizing the consequences, you may pay a 10% penalty.  

401k 

If your job has a 401kand is offering matching contributions, it makes sense to set up a 401k account as soon as possible so you can start earning the free money your employer is offering.  In general most employers offer 50% matching up to 6% of your salary.  If you do the math, that means your employer is giving you an extra 3% salary on top of whatever you are earning. There are no taxes within a 401k as well. You are only taxed upon withdrawal which would be when you retire and are hopefully paying less taxes due to a smaller income.

    2007 maximum contribution limit is $15500

    2008 maximum contribution limit is $16000

NOTE: Each employer may have their own maximum contribution limits as well.  Some may limit you to a percentage of your salary.

Another reason why the 401k is good for you to invest in is because it utilizes pre-tax income. For example, if you are earning $50,000, and then contribute $10,000 of your salary to the 401k, the government will only tax you for $50,000 - $10,000 = $40,000 taxable income. To them, your income appears to be only $40,000. So it saves you from paying some taxes.