As one of the largest tech companies out there, Amazon offers some enticing options when it comes to caring for their employees. By taking advantage of their robust benefits and compensation options, workers can set themselves up for success in the years ahead. Understanding the ins and outs of the Amazon 401(k) vesting is essential to tap into all that Amazon has to offer and make the most of your time with the company.

What can you expect from the 401(k) plan and the other benefits that come with employment at Amazon? Here’s a breakdown of what you need to know to maximize your income and start preparing for future retirement. 

Breaking Down Amazon’s 401(k) Plan

Every worker should have their eyes clearly fixed on the horizon for the point at which they would like to retire in the not-so-distant future. Amazon offers a robust 401(k) plan for their employees, but what do you need to know to make the most of this benefit?

Eligibility and Enrollment

The good news is that almost all employees who work at the e-commerce retail giant are eligible for this perk to help them save for retirement. The 401(k) plan is available to all employees ages 18 or older, immediately upon the date when they are hired. 

All full-time and reduced-time workers are automatically enrolled 90 days after their hire date unless they opt out or enroll themselves prior to this point.

While it may take up to ten days to officially enroll with Fidelity, the process is streamlined to make planning for retirement easier. They want you to be able to take advantage of the generous matching contributions that Amazon makes on your behalf. 

Contributions

Workers can contribute up to 90 percent of their pay to an Amazon 401(k) as long as they comply with the IRS limits. For 2024, this means that you can contribute up to $23,000 annually in either pre-tax or Roth contributions. Those ages 50 or older can contribute an additional $7,500 as a catch-up to make sure they are in the best possible position for retirement. 

Amazon also makes a contribution on your behalf depending on how much you contribute to your 401(k). For every dollar that you put toward retirement in your 401(k) account, Amazon will put in $0.50, up to a max of 4% of base salary. 

Said differently, Amazon will contribute a max of 2% of your base salary if you contribute 4%. Your contributions to pre-tax and/or Roth 401(k) will be matched, but after-tax contributions will not be matched.

Matching and Vesting Timeline

One commonly missed clause in the Amazon hiring paperwork is that you will not receive the company’s matching funds if you only stay with Amazon for a limited time. Matching contributions do not vest until you have been with the company for three full years. 

A year is defined as a calendar year in which you put in 1,000 hours of service. 

If you were to leave the company before the three-year mark, you would forfeit ALL of the match that Amazon made on your behalf. This is known as a three-year cliff vest.

Note that all matching funds are vested immediately after three years of service.

Other Amazon Benefits

While the Amazon 401(k) is one of the best benefits of working for the retail giant, they also have other benefits that you’ll want to consider as part of your compensation package. Restricted stock units (RSUs), health savings accounts (HSAs), and flexible spending accounts (FSAs) are a few notable benefits.

Amazon’s Restricted Stock Units

Most salaried positions at Amazon are granted Amazon RSUs as part of the compensation package. The number of RSUs depends on your level and performance over time. Amazon awards RSUs to encourage team buy-in at every level of the business. Amazon’s success is mirrored as your success if you own a share in the company. 

Vesting happens over the course of four years. You will see minimal results in year one as just 5 percent will vest at the end of the first year. Year two brings an additional 15 percent while years three and four each bring 40 percent. 

This slower, first two years of vesting is why Amazon pairs the first two years of employment with a sign-on cash bonus.

Understanding the RSU tax rates for Washington where Amazon is headquartered or your home state if you work remotely is just one consideration in deciding what to do with your RSUs upon vesting.  

Reduce taxes on your RSU income by maximizing tax deductions on tax-deductible accounts, like a pre-tax 401(k) or a health savings account (HSA). Selling your RSUs immediately upon vesting minimizes the capital gains tax that you may be subject to. You can also adjust your sell-to-cover options, which is the amount of shares that are automatically sold upon vest to cover income taxes). For many, the default withholding of 22% won’t be enough to cover your tax bill. You can do this at amazonstock.com.

Flexible Spending Accounts

Another option to make the most of your Amazon benefits is the flexible spending account or FSA. This account can be used toward healthcare or dependent care and comes out of your pay before taxes. Depending on which type of FSA you enroll in, it can be used for different purposes.

For example, a healthcare FSA allows you to cover insurance copays, pay toward your deductible, and other expenses that are not covered by your health, dental, or vision insurance. You can open one of these accounts with a minimum of $100 and a maximum of $3,200 per plan year in 2024.

Note that enrollment in the healthcare FSA is not compatible with the HSA option. 

On the other hand, a dependent care FSA can cover the costs of childcare or elder care. You are eligible for a great contribution limit on this type of account with a minimum at the same $100 and a maximum of $5,000 annually. 

Work with Professionals Who Understand You

You need someone in your corner who understands the benefits offered to tech professionals at companies like Amazon. Consilio Wealth Advisors has the detailed know-how that you need to make the most of your compensation and benefits at Amazon. We even put together a library of Amazon resources to help professionals like you make the most of your compensation - completely free!

We walk tech professionals at Amazon through the core components of financial decision-making to help you win the tax game, contribute to your 401(k), and align other benefits like RSUs with your goals. If you have been feeling uncertain about your job offer or just want to know how to plan for the future, schedule a call with Consilio today.

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