I would contact a tax accountant to advise your wife of the possibilities. Also, setting up a meeting with someone trained in retirement plans. This will give you and your wife all the available options and answer your questions better.
I will start with the easier one - retirement. You as a paid W-2 may contribute subject to the rules and limitations of whatever plan may be set up. There also may be an employer contribution. There are a number of plans available depending on your finances, age, income, the profitability of the business, the future of the business (how long will it be around? will there be other employees added?). Now if your wife is not paid as a W-2 employee, she is without exception precluded from participating in the plan. Is she does receive W-2 employee comp, she is eligible as would be any employee. Until you have other employees, you don't to worry about discrimination rules which might otherwise limit your contributions or force additional contributions from the S corp for the other employees. One thing to note is that if either of you participate in a 401k/403b/SIMPLE the total permitted salary deferrals for each of you are combined for all plans. i.e. neither of you can max out the deferral limits for two 401k plans at 16,500 (22,000 if over age 50) and contribute a total of 33,000 in salary deferrals. Proper plan design can usually get you where want to be though. It is not too late. You have until 12/31/10 to establish the plan. Employer contributions aren't due until the earlier of 9/15/11 (if extended) or the date the s corp return is filed.
As far as cafeteria plans go, you are both precluded from participating in any section 125 plan of any kind PERIOD. You are considered to be an owner due to attribution rules. S Corp owners are considered partners rather than employees for this purpose. Owners' spouses are considered owners for this purpose. Here is a good link that explains it.
This link gives a great explanation of how to handle the health insurance premiums to get the greatest tax benefit. In case this is confusing that the premiums are added to the W-2, the net result after deducting it on page one of form 1040 is usually the same or very close to the same as if the corp just deducted it without adding it to the W-2.
My wife is 100% share holder of the S Corp. I recently became a W2 Employee of this corporation. There are no other employees on payroll of this company.
In such arrangement, How will S-Corp will pay the employee benefits through payroll ? The benefits that I am talking about are Insurance (Health, Dental,Vision), Accidental Death & Disability, Flex Spending-Plan 125 for commute (transportation & parking), 401 contribution etc.
How can she contribute to retirement planning ? As far as onwer goes, how can she contribute to her own retirement planning account ?
I read that due to Scorp status and me only being employee [non owners] , there are some issues on paying insurance premiums.