Navigating 401k Changes for Agencies with Craig Cody

Danyel McLellan [00:00:01]: 

It doesn’t matter what kind of agency you run, traditional digital media, buying, web dev, PR or brand, whatever your focus, you still need to run a profitable business. The Build a Better Agency podcast, presented by White Label iq, will expose you to the best practices that drive growth, client and employee retention and profitability. Bringing his 25 plus years of experience as both an agency owner and agency consultant, please welcome your host, Drew McLellan.  

Hey, everybody, guess who? Yep, it’s Drew McLellan Agency Management Institute. And like I do every week, I am back with another episode of Build a Better Agency. This is a, this is going to be an important one and we’ve actually moved it up in the schedule because it’s timely. So if you normally like decide hit or miss, if you want to listen, this is one I would like you to listen to today, like right now, because it is very timely for the end of the year in 2026.  

So our guest today is Craig Cody, who many of you are very familiar with through ami. Craig Cody is a CPA who specializes in agencies and he is a tax advisor. He is brilliant. He is one of those guys, he and his team who you call on because they have a depth of expertise with, that is really hard for you to have in house.  

So I’m going to tell you a little bit more about why Craig’s on the show again right now and why this is critical for you. But before I do that, I want to thank our friends at White Label IQ for being the presenting sponsor of this podcast. They too bring a depth of expertise that many agencies just can’t have in house. So, as you know, they do white label design, dev and ad placement for agencies all over the globe. And they’ve got a technical expertise that goes far deeper than WordPress. They’re building apps, they’re using AI, they’re doing all kinds of things, but they are here to augment what you can do, just like Craig augments what your accounting team does or your internal accountant does by bringing that expertise. So for some of you, you’ve got a few little jobs piling up. You can just tap white label to kind of knock those out. If you want the protection of a fixed price and having them be your team all together, you can do that too.  

And if you need a full person embedded inside your agency, they’ve even got FTE programs that will bring that continuity and deeper integration to you, so they will flex with you based on what you need. But in all of those cases, they just bring a depth of expertise that not only the technical expertise, but they’re built from an agency, so they understand our world, so they. They understand agency life. So they know nothing that we do is cookie cutter, and they can’t be cookie cutter either. And so they really understand how your business works, and they bring a depth to your business that is really hard for you sometimes to staff internally. So please head over to white labeliq.com ami to find out about a special deal they have for you. If you’ve never worked with them before, and if nothing else, pop over there and just say thanks for sponsoring the podcast. That would make me very, very happy.  

All right, so let me tell you why our subject matter expert today, our tax subject matter expert, is here with us right now. So the government just came out with some changes to how 401ks are handled and how our contributions are handled, particularly for agency owners or any employees who make over 145,000 DOL dollars a year. And you need to know this because there are things you need to do in 2025, otherwise you’re not going to be in compliance and you’re going to be at rest, at risk for penalties in 2026. So turn up the volume, take notes, don’t miss out on this, but this is one you need to listen to. And then there are takeaways from this episode that you need to dive into right now. Okay. All right, take a listen. Let’s welcome Craig. Craig, welcome back to the podcast. 

 

Craig Cody [00:04:22]: 

Thank you very much for having me. 

 

Drew McLellan [00:04:24]: 

So as soon as I saw that the government was changing the 401k rules, I thought, oh, better get Craig back on here and help us understand this. So unpack for me, first of all, what are the core changes and why did they make them? And then we’ll talk about what we need to do about them. 

 

Craig Cody [00:04:43]: 

Okay. Well, I think the reason they made them is they want people to be saving for retirement, so they want to. 

 

Drew McLellan [00:04:51]: 

Kind of mandate retirement savings, right? 

 

Craig Cody [00:04:53]: 

I mean, the whole Social Security thing, who knows what’s ever going to happen with that? And all the states are coming in with their own mandates, and the federal government is coming in with stuff on top of that. Everyone’s trying to please everybody. There’s going to going to be a lot of compliance. All right? So I think that’s why it’s happening. And I think everyone needs to be proactive and hopefully working with somebody that’s going to help them stay on top of what they need to do to be compliant. 

 

Drew McLellan [00:05:24]: 

Okay, so in layman’s terms, what did they Change. 

 

Craig Cody [00:05:29]: 

Okay. They now changed catch up contribution. So right now you have your. Everyone could contribute 23 5, then there’s a 7500 catch up if you’re 50 and over. 

 

Drew McLellan [00:05:42]: 

So as of today, if you are 50 or older, you can contribute to your own 401k 23,5 plus you can do an additional $7,500 because you’re over 50. So in essence, you’re catching up on your retirement savings. 

 

Craig Cody [00:05:59]: 

And then there’s another amount. It’s about $4,000. If you’re 60, 61 and 62, I think it is. They allow you to. And it’s only for a couple years, they’ll allow you to put a few extra dollars in. 

 

Drew McLellan [00:06:10]: 

Okay. 

 

Craig Cody [00:06:11]: 

All right. But the big change there is for 2026. All right. 

 

Drew McLellan [00:06:18]: 

Yeah. 

 

Craig Cody [00:06:19]: 

If your 2025 W2, box three, which is your Medicare wages, all right. Is over, was $145,000 or over. 

 

Drew McLellan [00:06:31]: 

Because right now there’s no ceiling on this. Right. 

 

Craig Cody [00:06:34]: 

No ceiling for your deferrals. 

 

Drew McLellan [00:06:35]: 

Right. Right. Now I can put in the 23, 5, I can put in the 7,500. And if I’m in that little window of 60 to 62, I can put in the 4,000, regardless of how much money I make. 

 

Craig Cody [00:06:47]: 

Correct. 

 

Drew McLellan [00:06:48]: 

Okay. And so what they’re changing is they’re saying if your W2 income is more than $145,000, now the rules have changed. 

 

Craig Cody [00:06:59]: 

Now the rules have changed. 

 

Drew McLellan [00:07:00]: 

So for anybody who’s making on their W2, so anybody who pays themselves less than 145, this is not relevant for them. 

 

Craig Cody [00:07:08]: 

Correct. 

 

Drew McLellan [00:07:09]: 

But it would be if you had an employee that was making more than 145. 

 

Craig Cody [00:07:13]: 

Yes. 

 

Drew McLellan [00:07:13]: 

Or you, the agency owner, are making more than 145. 

 

Craig Cody [00:07:16]: 

Correct. And you know, it becomes very dangerous when it’s an employee. Okay. Because it’s one thing to screw something up with a retirement plan, and that’s you, but okay. But to have to go back to an employee. So the way it works is if your 2025, box 3, which is your Medicaid wages, is 145 or over in 2026, that $7,500 catch up can only be a Roth. 

 

Drew McLellan [00:07:43]: 

Right. Okay. So. So I’m. Will it still be part of my 401k or I can put it away in an in. In an ind. So. So Drew McClellen has a 401k through AMI. Drew McClellen is over 50. Drew McClellen pays himself more than 145. Will that Roth be inside the 401k or is it outside the 401k? 

 

Craig Cody [00:08:10]: 

It has to be inside the 401k. And, okay, so I have to work. 

 

Drew McLellan [00:08:14]: 

With my 401k provider to set up a Roth as a secondary account inside my 401k. 

 

Craig Cody [00:08:23]: 

And I believe that has to be done this year. 

 

Drew McLellan [00:08:27]: 

Okay. So. So because it’s going to be for about my 2025 wages, I have to set it up now or my. I have to set it up before the end of 2025 so I can start contributing in 26. 

 

Craig Cody [00:08:40]: 

So you have to make sure that your 401 has the Roth provision. So let’s just say you’re a younger person. Right. They may want to contribute to the Roth because they’re going to have all that deferral over the next 40 years and pull it out tax free. So there are a lot of plans that have that provision already. There’s also a lot of plans that don’t. So you need to have the provision, otherwise you won’t be able to even put $7,500 away. Okay. Which you’re going to pay tax on it anyway, but it’s still going to increase the amount of money into your retirement plan. 

 

Drew McLellan [00:09:19]: 

Right? Okay. 

 

Craig Cody [00:09:20]: 

So that’s something that has to happen this year. Now, let’s take it a step further. All right? Most people are busy running their businesses. Okay. Most plans aren’t doing a whole lot as far as this is. They may send you a letter, and you know that letter is going to wind up with everything else that you get. Okay? 

 

Drew McLellan [00:09:38]: 

Right. 

 

Craig Cody [00:09:38]: 

You have a million things you’re doing. All right? So in 2026, you’re going to get your W2. All right? And in 2027, they’re going to do the retirement plan, all the compliance work they have to do, and they’re going to see that Drew made more than $145,000 in 2025, but he still did the catch up in a regular 401. 

 

Drew McLellan [00:10:06]: 

Right. I didn’t know about this. I didn’t make the corrections. I just did what I’ve always done. 

 

Craig Cody [00:10:11]: 

Now, in 2027, you’re going to get a 1099. Okay. That’s $7,500. 

 

Drew McLellan [00:10:18]: 

So now I’m going to be taxed on it. 

 

Craig Cody [00:10:20]: 

Correct. 

 

Drew McLellan [00:10:21]: 

Got it. 

 

Craig Cody [00:10:22]: 

So no one, they don’t want to go in and start amending W2s and stuff like that. They’re just going to send you a 1099. And once again, it’s bad enough if it’s Drew, but if one of it’s one of Drew’s employees. 

 

Drew McLellan [00:10:38]: 

Right. 

 

Craig Cody [00:10:38]: 

Okay. 

 

Drew McLellan [00:10:39]: 

That’s doubly bad, because now I’ve done that to my employee, and I’m going to hear about it. 

 

Craig Cody [00:10:45]: 

Well, now they’re going to have $7,500 additional taxable income that they didn’t pay tax on. 

 

Drew McLellan [00:10:50]: 

Right. Because. Because my 401k, as the employer, didn’t do what I was supposed to do. 

 

Craig Cody [00:10:56]: 

Correct. 

 

Drew McLellan [00:10:58]: 

Okay. 

 

Craig Cody [00:10:59]: 

Not fun. 

 

Drew McLellan [00:11:01]: 

No. Right. 

 

Craig Cody [00:11:02]: 

No. 

 

Drew McLellan [00:11:02]: 

Nobody wants to have that conversation with their employee. 

 

Craig Cody [00:11:05]: 

Definitely don’t want to have that conversation. Okay. And. And like I said, most plans are going to send you notices, so they’re going to cover their butts. They’ve sent you notices nobody’s looking at because you figure out they’re doing everything for me, you know, but it’s. It’s important. It’s very important. And I would say, you know, if your 401k plan does not have that provision. Okay. Get that taken care of sooner than later. 

 

Drew McLellan [00:11:34]: 

So what I as an employer need to do is I need to reach out to my 401k administrator, whatever company administers my 401k, and make sure that, A, they have the ability to put a roth inside that 401k, and B, that everyone on my payroll, including myself, but also any employees who have. Who make more than $145,000, have that secondary account. And that the. The way that the contributions are being handled is being set up appropriately so no one gets the surprise. 1099, right? 

 

Craig Cody [00:12:13]: 

Correct. And what I would say. And to help on a compliance side, as far as a business owner, if you have somebody that’s falling into that little donut hole, maybe make those Roth. If you have the Roth set up, make your Roth contributions first. Okay? Because it’ll cap out the 7500 and then you. Because you might remember now, but in all likelihood, whenever you hit that magic number, you probably won’t remember. 

 

Drew McLellan [00:12:46]: 

Right. 

 

Craig Cody [00:12:47]: 

Other things done. 

 

Drew McLellan [00:12:47]: 

Right. So you’re just making your monthly contributions. You hit your 23 5. Whenever you hit that. And then what you’re saying is you have to. You have to flip the switch and go, nope, now it’s got to go into the Roth. As opposed to. What you’re suggesting is, look, do the 70$500 Roth first, then switch over, and then you can put in your 23 5. 

 

Craig Cody [00:13:09]: 

Right. Because remember, the 401k company, even if you have the Roth, they’re not going to know. 

 

Drew McLellan [00:13:16]: 

You still have to designate where the funds go. 

 

Craig Cody [00:13:18]: 

Exactly. Once again, a task and a Compliance headache. 

 

Drew McLellan [00:13:23]: 

What else have they changed with this law? 

 

Craig Cody [00:13:26]: 

Automatic enrollments, which means that, you know, if you have a plan that came into being after December 29, 2022. All right, yeah, you have to have auto enrollment, which means depending on the type of plan you have, if you are, if you have a one year entry date, a six month entry date, a three month entry date, I typically recommend a year. Right. That people need to be auto enrolled and that becomes a compliance issue for you. 

 

Drew McLellan [00:14:03]: 

Okay, so let me just see if I understand this. So one of the law changes is that whether people want to participate in the 401k or not, I have to auto enroll them in the program when they become an employee. And if I have a waiting period for like you’re a brand new employee, you have to wait a year before you are eligible to participate in our 401k. I have to make sure that on their anniversary, they’re auto enrolled. That what you’re saying. 

 

Craig Cody [00:14:31]: 

So you can’t, you can’t enroll them today. You have to wait the year. Okay, all right, and what happens if. 

 

Drew McLellan [00:14:38]: 

What happens if I don’t enroll them? 

 

Craig Cody [00:14:40]: 

If they’re not auto enrolled, you can be penalized. And worse than that, if the employee leaves, they should have been enrolled. They should have put X amount of dollars in. They make a complaint and you get a nice hefty penalty, you know, and then the state, depending on the state, the same thing. And then once you’re in auto enrollment, there’s also increased amounts that have to go in every year. So let’s just say you have to go from 1 1% to 2% to 3%. All right, so what we’re suggesting is, let’s just say you have a plan with a one year length of service before you can get into the plan. And most people are doing annual reviews, right? So with that, when you hire them with their first year review paperwork, you put the enrollment form right on top of that. I would suggest on that paperwork, put them in for 10%, give them and say this is what we suggest you do. If they say no, okay, let them fill out a form for if they want zero, let them say zero. If they want three, they enroll for three. So now it’s no longer auto enrollment. They’ve actually made a decision, and then it’s up to them going forward. It does not become Drew’s compliance issue. 

 

Drew McLellan [00:16:00]: 

So basically you’re saying when they’re filling out all their other paperwork the first week of their employment, regardless of when they actually could participate in the 401k. You have them fill out the paperwork, you file the paperwork with a future date and then you’re good to go. 

 

Craig Cody [00:16:17]: 

Well, you can fill out the paperwork, but you have to wait for them to sign it till a year later. 

 

Drew McLellan [00:16:23]: 

Okay. So then I’ve got to put, I’ve got to calendar that and be ready and remember to do it. So I’m in compliance. 

 

Craig Cody [00:16:31]: 

Correct. So, and that’s if, if you have 10 or more people. Okay. 

 

Drew McLellan [00:16:37]: 

Oh, okay. So if I have fewer than 10 full time employees or people who are eligible to participate in the 401k, then I. That’s not a rule I have to worry about. 

 

Craig Cody [00:16:46]: 

It says 10 employees. 

 

Drew McLellan [00:16:48]: 

Okay. So. So even in counting, Counting me, including your kids, right? 

 

Craig Cody [00:16:53]: 

Okay. 

 

Drew McLellan [00:16:54]: 

Yeah. 

 

Craig Cody [00:16:54]: 

Whoever’s on the payroll, 10 employees. 

 

Drew McLellan [00:16:56]: 

Okay. 

 

Craig Cody [00:16:56]: 

All right. So in most cases, if you’re over 5, I would just really, just make sure that people actually do an enrollment, even if it’s zero. 

 

Drew McLellan [00:17:10]: 

Right. 

 

Craig Cody [00:17:10]: 

This way you don’t have to worry about, you know, being hit. All right. 

 

Drew McLellan [00:17:15]: 

Okay. In terms of sort of managing all of this, whose job is it to know all of this, manage all this? If we’re like a lot of our people are go through Gusto or a payroll company. Is it the payroll company that does it? Is it their CPA that does it? Is the 401 administrator, like I know we are, have ultimate responsibility to understand the law and comply with the law, but who should be helping us keep track of all of this and make sure that we’re like on the straight and narrow. 

 

Craig Cody [00:17:48]: 

So they’re all going to tell you, you’re your 401. Like whoever runs like Gusto, I think is the guideline is Gusto. Okay. They’re all going to send you all sorts of documentation, but nobody’s going to call you up and say, drew, you. 

 

Drew McLellan [00:18:04]: 

Haven’T done this yet. Right? Right. 

 

Craig Cody [00:18:06]: 

Okay. So it’s going to fall upon you, fall upon your HR people. That’s the way it’s going to be. 

 

Drew McLellan [00:18:15]: 

So from a perspective of cost to the agency, this really doesn’t change anything, right? I mean, it doesn’t change. It’s really just a matter like our matches aren’t changing. We’re not being taxed on anything. This is just really a get it right or get pay a penalty. If you get it wrong situation. 

 

Craig Cody [00:18:37]: 

Right. You don’t want to pay a penalty. And it’s also a good idea to now really take a good look at your 401k, see how it’s set up. See, you know Are you doing all the things you want to do? You know, some plans are old, they’ve never been updated. They need to be updated to just to be compliance. Because what will happen with. I’ll say, and I’ve seen this with guideline like they’re sending the owner stuff. If the owner’s not doing anything, there’s nobody hitting you over the head to say you need to get this thing signed. You know, it’s all computerized. So I always like to say, you know, have a discussion with whoever’s doing your plan. You know, they should be speaking. You know, we like to talk to people every month, you know, at least an annual, if not a semiannual review with your 401k plan. 

 

Drew McLellan [00:19:26]: 

So when you say that we should sort of update our 401k, what kind of questions should we be asking to see if our plan is updated or current or in compliance or whatever the language is? 

 

Craig Cody [00:19:40]: 

Am I, is my plan compliant and do I have a 401k provision? Okay, those are the two main things. So, and the dates on this is important because there are a lot of things that have to be done by the end of November to go into effect for 2026 because you’re supposed to give notice to employees. Like all these plans, they send out the letters, you know, this is just supposed to distribute to the employees, you know, do they get distributed? Don’t know. But it’s becoming bigger and bigger compliance headache to do all the things. And that’s why you really need to, you know, have a relationship with whoever that investment advisor is. 

 

Drew McLellan [00:20:28]: 

Right. 

 

Craig Cody [00:20:29]: 

So you’re making sure you’re doing the things that you want to do. 

 

Drew McLellan [00:20:33]: 

Okay, let’s take a quick break and then let’s come back and let’s talk about if there were any other changes or anything else. We need to be thinking about sort of year end around taxes, tax credits, that sort of thing. So we’ll be right back with Greg Cody. Are you tired of juggling multiple tools to manage your agency? Meet Deltech Workbook, the all in one solution for marketing and communications agencies. Streamline your projects, resources and finances all in one place. With real time dashboards and reporting, you’ll have full project visibility. You can plan team capacity weeks ahead to avoid bottlenecks and keep your budgets on track to maximize profitability. It’s perfect for both agencies and in house marketing teams looking to work more efficiently. PCI is a certified Deltec partner offering expert implementation and support to ensure your success. If you’re ready to transform your operations Visit PCI US podcast for a free consultation today. Hey everybody, thanks for listening today. Before I get back to the interview, I just want to remind you that we are always offering some really amazing workshops and you can see the whole [email protected] on the navigation head to how we help. Scroll down and you’ll see workshops and you can see the whole list there with descriptions of each workshop. They are all in Denver and we’ve got them throughout the year for agency owners, account Execs, agency leaders, CFOs. We have a little something for everybody. No matter what it is that you’re struggling with, people, new business, money, all of those things we’ve got covered. So check them out and come join us. All right, let’s get back to the show. All right, we are back and we are with our tax expert and guru Craig Cote, who many of you are very familiar with over the years. And we were talking about the changes in the 401k regulations, contributions, where those funds need to go starting in 2026. And so we’ve kind of covered that. So Craig, when they came out with this 401k change, was anything else change that we need to be sort of thinking about as we start thinking about our year end tax prep and what we’re going to do in 2026? 

 

Craig Cody [00:22:56]: 

Well, a lot of these things came in in 2223. They’ve kind of been phasing in kind of since the pandemic. 

 

Drew McLellan [00:23:06]: 

Right. 

 

Craig Cody [00:23:07]: 

And I would say the big thing that people should be aware of is if they have a plan that started after 2022, they may have credits that they’re entitled to. 

 

Drew McLellan [00:23:18]: 

So tell us a little more about that. 

 

Craig Cody [00:23:20]: 

If you started, if you did not have a retirement plan and you started a plan after 12, 29, 22, you can be in, you’re entitled to a startup credit which can be up to $5,000 and then another credit for the max that you give to employees that is up to $1,000 per employee. 

 

Drew McLellan [00:23:40]: 

Okay. So if you’re either a new company or you’re an older company, but you just started retirement benefits in 2022, after. 

 

Craig Cody [00:23:49]: 

The end of 2022. 

 

Drew McLellan [00:23:50]: 

Okay. So as of January 1, 2023. 

 

Craig Cody [00:23:53]: 

Yeah. 

 

Drew McLellan [00:23:53]: 

Then you’re eligible for two credits. Are those tax credits? 

 

Craig Cody [00:23:58]: 

They are tax credits. And I’ve seen like gusto with guideline is is they’ve been good with getting the information out to, you know, the, the client. They’ll say you’re entitled to an $18,000 credit from last year. All right. And then that flows through. But that’s not 100%. But, you know, if, if you’re giving money to your employees and you’re getting. We saw one where they got, you know, $18,000 back, $1,000, you know, that’s, that’s, that’s a chunk of change, you know? 

 

Drew McLellan [00:24:29]: 

Right. 

 

Craig Cody [00:24:29]: 

It’s government money. So. And that flows through to your personal tax return. 

 

Drew McLellan [00:24:34]: 

Okay. So that’s a conversation I should be having with whoever. My retirement plan. Is that true? If I, if I’m doing a simple or a 401k? 

 

Craig Cody [00:24:43]: 

No, it’s just a 401k. But if, if you had a simple. A 401k is not considered new, so you could not have had any type of retirement plan. 

 

Drew McLellan [00:24:53]: 

Okay, but it’s only if I did a 401k, not a simple. 

 

Craig Cody [00:24:57]: 

Correct. Only if you did a 401k. 

 

Drew McLellan [00:24:59]: 

Okay. So if you started a 401k, if you had no retirement plan, whether you were in existence or not, if you had no retirement plan Until January of 23 or later, you’re eligible for those tax credits. So I would assume you’re talking to both your retirement fund administrator, but also your tax advisor, because they’re going to have to do the paperwork to get that credit. Right, Right. 

 

Craig Cody [00:25:26]: 

And it normally will come from your retirement plan. Record keeper will give you that information. 

 

Drew McLellan [00:25:33]: 

Okay. 

 

Craig Cody [00:25:34]: 

All right. And then it flows through your business return onto your personal return. Okay. So. And like I said, it can add up to a lot of money. 

 

Drew McLellan [00:25:42]: 

Yeah. Right. Well, even if it’s just the $5,000, it’s $5,000. Who would not. Who would not want that? Right. 

 

Craig Cody [00:25:49]: 

And, you know, I’m also going to take this time to, to push the 401k because, you know, a lot of people have simple plan, simple IRAs. They, you know, they think they’re very easy to administer, which they are, but they’re capping out the amount of money that an owner is allowed to put put away. 

 

Drew McLellan [00:26:07]: 

Right. 

 

Craig Cody [00:26:08]: 

So as an owner, you could put about twice as much money into a 401k if you’re 50 years or older. 

 

Drew McLellan [00:26:15]: 

Right. 

 

Craig Cody [00:26:15]: 

Than you can into a simple. 

 

Drew McLellan [00:26:17]: 

Right. 

 

Craig Cody [00:26:18]: 

You know, and with a simple, you, you’re putting money in for employees anyway, so you might as well go to the 401k and have the opportunities to do other things down the road. It opens up a lot of doors. 

 

Drew McLellan [00:26:29]: 

I think a lot of people also are afraid. They think the administrative fees are a lot higher on a 401k than a simple. 

 

Craig Cody [00:26:37]: 

Oh, and they’re probably a little higher. Okay. But they’re also tax deductible. And you know, from an employee standpoint, people can put more money away. They want to save for retirement. But you know, think of the owner if you’re able to put $30,000 away versus 14. 

 

Drew McLellan [00:26:57]: 

Right. 

 

Craig Cody [00:26:57]: 

Okay. Think of your tax savings there. And if you have a spouse and that spouse works in the business. Okay. Now you’ve doubled that. 

 

Drew McLellan [00:27:06]: 

That’s right. Right. 

 

Craig Cody [00:27:07]: 

So it’s, it’s a big tax savings. I mean, obviously you have to be able to afford it. It’s got to fit in the budget. But you know, as you’re making more and more money, the tax savings far outweigh what you’re putting away. And basic people want retirement plans, you know. 

 

Drew McLellan [00:27:24]: 

Right. Well, I think today it’s kind of a table stakes thing. I think it’s challenging to be a competitive employer and not have. And not have some sort of retirement program. 

 

Craig Cody [00:27:36]: 

Most definitely. Most definitely. 

 

Drew McLellan [00:27:37]: 

Yeah. I know it’s hard to get a 23 year old excited about a 401k or a simple IRA, but I do think when they sort of are comparing job offers or anything like that, if you don’t have it, it’s notable. 

 

Craig Cody [00:27:50]: 

Most definitely. And if somebody shows them what a couple of thousand dollars a year starting at 22, 23 versus starting at 33 or 40. 

 

Drew McLellan [00:28:00]: 

Yeah. 

 

Craig Cody [00:28:01]: 

Is going to be, you know, it really ramps up over time and you know, that gives them a lot of flexibility, you know, when it comes time to retirement. 

 

Drew McLellan [00:28:09]: 

My dad was a banker and so he called compound interest the eighth wonder of the world. He would speak of it with great reverence. So he, he would have been the guy to make that chart of like, look, if you put away $2,000 when you were 22, here’s what happens to it by the time you’re 65. That delighted my father, like very few other things was compound. 

 

Craig Cody [00:28:30]: 

Right. And that’s crazy because it turns into even $2,000. You know, you see those charts and it’s, it’s a lot of money. So it is. And you know, I think as employees, we want our employees to think of those things, you know, to put more money away for retirement, give them better stability. 

 

Drew McLellan [00:28:47]: 

Well, I also, I think a lot of times we assume that kids have already been edge or employees have already been educated about all those things, whether at school or from their parents. And I’m always a little surprised at how often they don’t really understand how saving for retirement works. And they don’t really understand the power of putting away a little bit of money. You know, when they’re young, even though they don’t have a lot of money, what that really does for them, they just don’t. The math is surprising to them. So don’t assume that your employees have been educated about the power of, as my dad would say, the eighth graders in the world. 

 

Craig Cody [00:29:27]: 

More likely than not, they’re not educated on that. Okay. Because I don’t know where they. Other than getting it from home, they’re not going to get it. They’re definitely not getting it at school. Yeah. 

 

Drew McLellan [00:29:37]: 

Right. 

 

Craig Cody [00:29:37]: 

Okay. It’s kind of like looking at the digital clock versus the regular clock. 

 

Drew McLellan [00:29:41]: 

And that’s. Right, Right. 

 

Craig Cody [00:29:42]: 

The number of people that shockingly. And me and you look at that and like, it’s a big hand, a little hand. Right, right. We were different generation. So. 

 

Drew McLellan [00:29:51]: 

Yep. What else should we be thinking about as we come on the tail end of. Of 2025 and we’re thinking about preparing for filing for taxes? What else are you telling your clients they should be thinking about? Besides, I know one of the big things for you is that you should be with your. You should be getting with your tax advisor if you haven’t already in the month of November. So you have time to make whatever adjustments or plans. It’s not a December 15th or worse, a March 15th conversation. 

 

Craig Cody [00:30:22]: 

Right. It’s definitely not a 2026 conversation. 

 

Drew McLellan [00:30:26]: 

Right. 

 

Craig Cody [00:30:27]: 

And it’s. It should also just not be, okay, this is what you owe. 

 

Drew McLellan [00:30:32]: 

Right. 

 

Craig Cody [00:30:32]: 

It should be. This is what you owe. But these are some things you can do. And, you know, most clients and most people that we talk to will say, I’m the one going to them to, to tell them. And, you know, if that’s where you’re at today, we’ll do it. Because you want to. You don’t want to get to the land of no return where you have no options. Right. So have that meeting. See what you owe, see what you can do and ask, what else can I do? 

 

Drew McLellan [00:31:01]: 

Help me beyond. I have to buy a bunch of stuff or prepay a bunch of stuff. Right. 

 

Craig Cody [00:31:05]: 

And you know, that is only worth so much. And it’s kind of like, definitely don’t buy stuff you don’t need because. 

 

Drew McLellan [00:31:11]: 

Right. 

 

Craig Cody [00:31:11]: 

I’d rather pay 37 cents than lose a dollar. 

 

Drew McLellan [00:31:15]: 

Right. 

 

Craig Cody [00:31:16]: 

So. And you see that sometimes, but, you know, spouses. Is your spouse on the books? What’s going on there? Can we get them on a 401k plan at the end of the year? If they’re not working someplace else with a 401k plan, and they are helping you in the business. So those are things. But definitely have a conversation sooner than later. 

 

Drew McLellan [00:31:39]: 

Right. Any other changes coming up for 26 that we need to be prepared for or thinking about as we make financial decisions in these last few months? It’s hard to believe we’re already at the end of the year. It’s crazy. 

 

Craig Cody [00:31:51]: 

There’s been a lot of changes in the big, beautiful build, and I think we’ll have to go over on a separate call one day. But I think 25 is. You know, there’s changes to depreciation and bonus depreciation. So whereas typical agencies aren’t buying a lot of equipment. You know, maybe a car or vehicle probably. 

 

Drew McLellan [00:32:11]: 

Right. 

 

Craig Cody [00:32:12]: 

But if you’re buying real estate. Okay. Or rental properties and stuff like that, that’s something you should be aware of, you know, because there’s additional depreciation that you’re entitled to. And make sure you. You’re setting it up or setting yourself up to win versus just to. To lose. 

 

Drew McLellan [00:32:30]: 

Right, right. 

 

Craig Cody [00:32:32]: 

So that. That’s one of the. The big things in the big beautiful bill, as it’s known as. 

 

Drew McLellan [00:32:38]: 

Right. Air quotes, right? 

 

Craig Cody [00:32:41]: 

Yes. 

 

Drew McLellan [00:32:42]: 

So in other words, everything else that is coming from that bill is for the most part going to impact 26, but not 25. 

 

Craig Cody [00:32:50]: 

Yeah, mostly 26 off the top of my head, you know. You know, and a lot of things were stayed or extended. Qualified business income has been extended, which is a great thing. All right. And that’s also something people, especially a smaller agency or an agency that has a lot of contractors, because we’ll see a lot more of that now that for sure that they are actually eligible for that qualified business income, that they’re doing the things that they need to do to get that. 

 

Drew McLellan [00:33:22]: 

So can you explain that a little more for people that aren’t familiar with it? 

 

Craig Cody [00:33:26]: 

So the qualified business income deduction is basically, you take your K1 and you multiply that by 20% and that’s the deduction you get. So if you have a $200,000 K1, that’s a $40,000 K1. Now, there are income limitations, and if you’re over those income limitations. So if you have a spouse that’s working and you’re working, you have two W2s, and then you have a big K1, you may go over a threshold, and then it’s limited by 50% of your W2 in the company. Okay. So if you. If it’s just you. Okay. And you’re making $100,000. It’s. It could be limited to 50. Right. If you have a bunch of employees, it’s not really going to be that big of a deal. Because if you have a million dollars employee salaries, okay, then you’re limited to 500,000. It’s not really going to come into play. 

 

Drew McLellan [00:34:18]: 

Right. 

 

Craig Cody [00:34:18]: 

But there’s enough agencies out there now with more of a skeleton crew and a lot of contractors that can be affected by it. And, you know, if you lose a $40,000 deduction at 37%, you know, that’s. 

 

Drew McLellan [00:34:32]: 

A chunk of change. 

 

Craig Cody [00:34:33]: 

Yes. So you don’t want to miss that. You don’t want to leave the money on the table. 

 

Drew McLellan [00:34:39]: 

What do you think the three most commonly missed tax strategies are? When you get a new client and you look over their past taxes, what are the three things that are often missed that are just money out the door that didn’t have to go out the door? 

 

Craig Cody [00:34:59]: 

Well, no planning. Absolutely. No. It’s not a strategy, you know, per se, but there is no planning that’s happening. 

 

Drew McLellan [00:35:06]: 

No, they’re not meeting with their tax advisor throughout the year. They’re not making plans throughout the years when they have plenty of time to shift things around. 

 

Craig Cody [00:35:16]: 

And when they do meet with the advisor, it’s usually March or April and that person has their head down and they have to get all that stuff done out the door. So they’re not doing any planning for the current year. You have to have those lines of communication. So that’s the biggest thing. And that opens up, you know, that opens up everything. Okay. The typical low hanging fruit is the Augusta rule, the self rental, the home office. You know, no one’s taking the home office. Pretty much everybody’s working from home. They’re working from home at least 15 hours a week. They’re entitled to this. And they’re either not doing it. They’re not, or they’re not documenting it. And we see a lot of times where people are doing some of these things, but there’s no documentation. And if you’re not going to document, you might as well not do it. Because if the IRS comes knocking and you don’t have any documentation, you know it’s not going to work. Right. So take the time, you know, go to that cpa, you know, schedule the call with them. And you know, if, if they’re not going to do business with you that way you have to make a decision. Do I need to go find somebody else? There are people that will do that. 

 

Drew McLellan [00:36:24]: 

Right? 

 

Craig Cody [00:36:24]: 

Okay. Take the time, try and push them into it if you have an ongoing relationship. If not, find somebody that will. There are people out there that. 

 

Drew McLellan [00:36:33]: 

Well, I always say, I think most people have tax preparers versus tax advisors. And, you know, when you’re a business owner you can’t afford, that’s a really costly mistake. Somebody who just checks the boxes and prepares the forms is not what you need. You need a strategic tax advisor like you, who, and I say this because, you know, Danielle and I have worked with you for years who helps you think through the strategy of how you mitigate your taxes and don’t pay more than you have to. It’s not about avoiding or cheating, but it is about not overpaying. It just doesn’t make any sense to overpay. And so to your point that. But I think it’s also important that what you’re saying is that those are strategies that if you’re meeting with somebody in March, so Now March of 26, about your 25 taxes, there’s not a lot you can do. The year’s done. Like, the books are closed. So you need to be meeting with your tax advisor throughout the year, talking about the current tax year and making moves and strategies so that at the end of the year, all those things are in place for when the tax is. The tax return is actually prepared. 

 

Craig Cody [00:37:47]: 

Correct. But if you have a preparer, that person is just interested in preparing tax. 

 

Drew McLellan [00:37:52]: 

Right, right. 

 

Craig Cody [00:37:53]: 

They’re not going to give you that advisory service. And if you have somebody that’s not in it, you know, you need to force them to meet with you. And, you know, trust me, we’ve had heard all the conversations. Okay. 

 

Drew McLellan [00:38:04]: 

Right. 

 

Craig Cody [00:38:04]: 

But. And somehow the. The conversations with. Or the meetings never occur. Okay. And. And then somebody’s getting a call in mid April that they owe all this money to the government. And, and typically the business owner knows. They have a feeling. Okay. Yeah. 

 

Drew McLellan [00:38:21]: 

They have a sense. Yeah. Yeah. 

 

Craig Cody [00:38:24]: 

But they don’t know what that dollar amount is until they get that phone call, and then nobody’s happy. 

 

Drew McLellan [00:38:30]: 

Right, right. You know, the home office. I just want to ask you this before we let you go. I hear a lot of people say, oh, I don’t do the home office deduction because it’s a red flag for the IRS. That feels like 1980s thinking as opposed to 2025 thinking. Can you just comment on that? 

 

Craig Cody [00:38:49]: 

Yeah, it’s definitely 1980s. I’ve been doing this for 25 years now, so I have to kind of go back. And, you know, it used to be everyone thought it was a red flag. Then probably 15 years ago, the IRS came out with a safe harbor. And. Which means there’s. There’s an amount that they’re not even going to dispute. And then the pandemic struck. 

 

Drew McLellan [00:39:08]: 

Right. 

 

Craig Cody [00:39:09]: 

And now. And change the way we all works from home. 

 

Drew McLellan [00:39:12]: 

Right. All right. 

 

Craig Cody [00:39:13]: 

And you document what you’re allowed to do, and it opens up other things. And, you know when people tell me, well, my CPA has a problem with the home office, and I’ll say, does he let you write off your whole car? And they’ll say, yeah, okay, so he’s okay with you writing a whole car off that you probably don’t use that much, but he’s got a problem with the place where you spend half your working time taking a deduction for all those things. 

 

Drew McLellan [00:39:37]: 

Right. 

 

Craig Cody [00:39:38]: 

So take the time, do the planning. It’s, you know, the code says you’re allowed to do it, do it, document it, but do it. 

 

Drew McLellan [00:39:45]: 

Right, Right. That’s, that’s. I think what I appreciate about working with you the most is your attitude is very much. It’s, it’s in the book. They’ve said you’re allowed to do it, so why wouldn’t you do it? And that’s, I think that’s the key is that you’re working with somebody who understands what’s in the code and what you’re allowed to do and maximizes that opportunity for you and your family so that you get to keep more of the money you make, which is really the reason why we’re all in business. 

 

Craig Cody [00:40:11]: 

Right. And document it and keep it and invest it and, you know, whatever it is that you want to do with it. 

 

Drew McLellan [00:40:17]: 

Right. 

 

Craig Cody [00:40:17]: 

Even if you’re investing it back into the. Build the business, you know, you’re, you’re, you know, there’s an ROI on that, too, so. So do it. One of the chief justices said there’s nothing illegal with tax planning. Okay. You’re allowed to do it. 

 

Drew McLellan [00:40:32]: 

Right. So, yeah, amen to that. As always. Thank you so much for being on the show and clarifying all this stuff for us. If people want to track you down, if they want to have a conversation with you, you. What’s the best way for them to reach you? 

 

Craig Cody [00:40:44]: 

Craig, email craigcodecpa.com, our website. If you just Google me, Craig is Cody CPA or Craig Cody CPA, you’ll come up with it. I’m on LinkedIn. I’m easy to find. 

 

Drew McLellan [00:40:58]: 

Yeah. And we’ll put all that stuff in the show notes as well. Folks, if you’re looking for Craig, if you’ve been around AMI for a while, you probably have met Craig at the Build a Better Agency Summit or some of our other events, or you’ve certainly heard me talk about him for years. And so you may be familiar with him. But if you’re new to our community, in our world, Craig is definitely someone you should follow. You should keep track of. Of his content. He’s always teaching us better, smarter ways to think about our taxes. And like I said, cannot tell you loudly enough. I often. Craig, you may never have heard this, but I often say, if Danielle and I were of a childbearing age and we had a baby, we would be naming that baby after you. So we would have a baby Craig for sure, with all the money you’ve helped us save over the years. But that’s not happening, my friend. I’m just. I’m warning you that right now. 

 

Craig Cody [00:41:46]: 

Okay, all right. That’s a good. 

 

Drew McLellan [00:41:47]: 

Not coming. Maybe the next puppy that might happen. 

 

Craig Cody [00:41:50]: 

All right. Okay. We could do it. 

 

Drew McLellan [00:41:52]: 

You’ll take it. 

 

Craig Cody [00:41:52]: 

Okay. All right. 

 

Drew McLellan [00:41:53]: 

Thanks for being with us, Craig. 

 

Craig Cody [00:41:55]: 

Thank you for having me. 

 

Drew McLellan [00:41:56]: 

All right, guys, so this wraps up another episode really critical. You’ve got to talk to Whoever administers your 401k now in November. We’re going to make sure this airs in early November so that you have as much time as possible. But if you don’t have the ROTH set up by in 2025, then you can’t start making those contributions in 2026. So Craig gave you several very specific conversations and steps to take with your 401k administrator and your tax advisor to make sure that you are in compliance with these new rules so that you don’t have to pay penalties and or worse, get a 1099 and pay tax on money that you intended to be part of your retirement nest egg. So do not dilly nor dally on this. This is really important that you get on this and get on it right away to don’t farm this out. Don’t give this to administrative person. You need to make sure that this is taken care of and you need to do it now, before the end of the year. Okay? All right. With that, I will be back next week with another guest who’s gonna get you thinking a little differently about your business. As always, huge shout out and thank you to our friends at White Label, the presenting sponsor of this podcast. Super grateful for them and I am really grateful for you. Thanks for. Thanks for listening every week. Thanks for sending me notes and letting me know that the content’s valuable for you. And I will see you next week. All right, Have a good week. Come back next week for another episode designed to help you build a stronger, more stable and sustainable agency. Check out our workshops, coaching and consulting packages and other professional development [email protected].