My wife has an LLC. I want to maximize deductions and set up a retirement account for her through the LLC. Does she have to be an employee of the LLC ? If so, how do I set that up?

Is your wife the only member of the LLC? If so, a single-member LLC is disregarded for tax purposes. It's the same as if she was self-employed and did not have an LLC. Your wife and the single-member LLC are one and the same.