This is exactly what the government is doing for many small business owners who set up tax-qualified retirement plans.

Businesses often establish retirement plans to attract and retain qualified employees. For smaller businesses, an additional attraction is the tax incentive provided by the U.S. government to encourage retirement savings.

Let's look at an example to see just how valuable this tax incentive can be.

Joe Smith is a 40-year-old small business owner. Last year, Joe's company contributed $50,000 to a tax-qualified retirement plan. Of the total, $40,000 went into Joe's account and the remaining $10,000 was divided among the accounts of his four employees. The money went into a trust fund where it will accumulate tax-free until it is paid out as retirement benefits. Joe's company gets a tax deduction for the full $50,000.

Fast-forward 25 years. Joe is now 65 years old and his own account is worth $2,260,000, assuming he's continued making contributions every year and the fund earned an annual average of 6%. The employees' accounts are worth $565,000. And they all think the money came from a generous boss!

Without the company retirement plan, Joe may have paid himself most of the $50,000 as additional salary, which would be taxable income. If he had invested the extra cash, he would have paid taxes each year on the investment income. At the end of 25 years, at a marginal tax rate of 45%, he would have $1,060,000—less than half the amount he'd have in a retirement plan account. Joe does have to pay taxes when he withdraws his money from the plan. At the 45% tax bracket, he'll net $1,243,000, about 17% more than he would have without a retirement plan.

So, by using a retirement plan, at the end of 25 years, Joe has more money. His employees have more money. And his employees think the money came from Joe!