What type of retirement plan can be set up?

A husband and wife each own their own business with 50% ownership in the spouse's business.

There is (1) W-2 employee in the wife's business.  However, they are looking to hire in the future.

There are several contractors.

They had a solo 401(k) - but terminated the plan in 2022.

What plan options are available to allow husband and wife to be part of a plan, along with the W-2 employee - they do not want to include contractors.  Note - they do not want the administrative burden/testing requirements of a 401(k) at this time.

Another question - after researching, self-employed individuals appear to be considered sch. c.  However, in order to defer into a solo(k) for Roth deferrals, would they have been treated as W-2?  If so, would this allow them to start up a Simple IRA for themselves and the employee?

Thanks!

First, any person who is not an owner and is an independent contractor providing service to the business(es) is not an employee and cannot be covered under a plan sponsored by either business (other than a nonqualified plan).

Any plans, whether defined benefit, profit sharing and/or 401(k) will have to satisfy coverage (and unless a safe harbor of some sort) and nondiscrimination. There are a plethora of design options, but if they want the simplest likely most efficient arrangement then a safe harbor 401(k) was likely the best option. However, having just terminated a 401(k) last year I believe they need to wait a year to adopt a new one.

As long as non-owner employee is eligible and there are no other contributions then there should be very little administrative burden for the owners - timely remitting contributions and signing annual 5500 filings.

If owners want more than salary deferrals and safe harbor (whichever type), then there are more design options that bring more complexity and the potential for nondiscrimination testing. If they are satisfied with the lower SIMPLE contributions, that is certainly an option as well.

As Cusefan stated, different options are available. Your question on what they can set up depends on a bunch of factors. Also, is this for 2022 or 2023?

IC - independent contractors are not employees although there are many instances, they are not properly categorized due to the list IRS has i.e. they could be determined to be employees which require them to be paid in W-2. They need to be very careful in determining if they are truly ICs.

As to what plans, it is a budgeting question. How much do they want to commit to spending?

In addition, what is the demography i.e. ages, salaries, how many employees are they planning to hire in the future etc etc etc

Since they terminated a 401k plan in 2022, I am assuming that they want the plan for 2023.

If they want to set up a SH 401k plan, hopefully the old plan terminated prior to 10/1/2022.

Otherwise, they can set up a PS plan and also add a cash balance plan, assuming they have the budget for it.

Lot to discuss with them and see what they want.