Small business owners may be reluctant to offer a qualified retirement plan because of concerns about cost, liability, and hassle. However, failing to offer this benefit is a detriment to attracting and retaining talented workers -- and it also costs owners the opportunity to shelter current income and save for retirement (believing that the business itself is a retirement nest egg can turn out to be a fallacy).

Furthermore, having a 401(k) account can be a source of borrowing to help an owner through a cash flow crisis or for other purposes. Understand what these plans entail and new developments that make them more attractive to employers.

Contributions

Earnings that go into the plan are not currently taxed; employer contributions are tax deductible. Investment returns on these contributions are tax deferred (i.e., not taxed until distributions are taken).

Contribution limits for 2015:

• Employees: $18,000 ($24,000 for those age 50 or older by year end).
• Employers: Total employee and employer contributions cannot exceed the lesser of an employee's compensation or $53,000 ($59,000 for employees age 50 or older by year end). An employer can contribute the difference between the limit (depending on employee age) and the employee's contributions.

For example, in 2015 a one-person S corporation owner who is 52 years old can contribute up to $24,000 of his or her salary; additionally, the corporation can make a contribution of $35,000 ($59,000 cap minus $24,000 employee contribution). In effect, this owner has sheltered $59,000 of income in one year.