Breaking Down Amazon's 401k & Vesting Options
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 of employment with 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 Amazon retirement plan?
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 Amazon 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 retirement plan with 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 (or $23,500 in 2025). 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. In 2025, this increases to $11,250 for those ages 60-63.
What is Amazon’s 401(k) match?
Amazon employees will be happy to know there is a generous Amazon 401(k) match for anyone who puts money into their retirement account! Amazon’s exact contribution on your behalf will depend on how much you put in your 401(k).
Amazon will match 50% of employee contributions up to a max of 4% of base salary. This means that for every dollar that you put toward retirement in your 401(k) account, Amazon will put in $0.50. This is essentially free money!
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 Amazon’s matching funds are vested immediately after three years of service.
4 Tips to Maximize your Amazon 401(k)
If you work at Amazon and remain employed there for at least three years, the 401(k) retirement plan available to you is worth investing in. But how can you get the most possible benefit from your Amazon 401(k)?
Here are a few tips to maximize your account’s growth and set yourself up for comfort in your golden years.
Tip #1: Take Full Advantage of Amazon’s Match
As previously mentioned, Amazon matches 50% of your contribution up to 4% of your base salary. To maximize your Amazon 401(k), aim to meet or exceed this amount and contribute at least 4% of your base salary! This way, you’ll receive as much “free” contribution as possible from Amazon.
That said, we generally recommend fully maxing out your 401(k) to the IRS limit each year. Contributing 4% of your base salary will maximize your Amazon 401(k) match, but there may still be room to contribute before you reach the overall contribution limit set by the IRS.
Tip #2: Maximize Deferrals
Put simply, an elective-deferral contribution (or a “deferral” for short) is the direct contribution of funds included in an employee’s paycheck into a retirement plan. While you’ll need to follow the rules set by Amazon and the IRS when making deferrals, they can be a handy financial tool.
Aside from the deferral guidelines outlined above, you’ll need to take your financial situation into account when deciding how much to save. If you can afford to hit the limit on these contributions, it’s worth it (and we recommend it!).
Wondering how to solve for your max? Just take the annual IRS limit over your base salary.
Example:
The max pre-tax and/or Roth contribution is $23,500 in 2025.
Take that over your base salary of $160,000 to find $23,500 / $160,000 = 14.7%.
Setting your pre-tax and/or Roth contribution to 15% will max you out over 12 months.
What if you start halfway through the year? You’ll need to take 6 months worth of salary and divide by the same annual limit:
$23,500 / $80,000 (6 months of salary) = 29.4% (round to 30%)
Important! 401(k) limits are per calendar year, not per plan. If you worked for another company for the first half of the year and already maxed out your 401(k), you cannot contribute to the Amazon 401(k) until January 1 of the following year.
If you’re wondering how much you contributed to your 401(k) while with your previous employer, you can look up your year-to-date contributions on a 401(k) statement. Then, solve for the remaining amount that would get you to the 2024 limit of $23,000 and set your 401(k) contribution to hit that amount.
Example: you contributed $10,000 to your 401(k) at ABC Company this year. You joined Amazon partway through the year. You can contribute an additional $13,000 to your Amazon 401(k) before year end, bringing your total to $23,000.
Tip #3: Utilize the “After-Tax” or “Mega Back-Door Roth” Strategy
From January 2020 on, Amazon employees have had the option of using “after-tax” contributions – AKA the “Mega Back-Door” Roth. This extra contribution can supercharge your retirement savings and their tax efficiency (we love tax diversification). Let’s break this down below.
First, let’s review how contribution limits work:
The current limit on total 401(k) contributions from employers and employees is $69,000 for 2024 ($70,000 in 2025).
In 2024, the IRS limit on pre-tax and/or Roth 401(k) contributions for people younger than 50 is $23,000 ($23,500 in 2025). If you turn 50 this year or you are older than 50, you can contribute an additional $7,500, bringing your total to $76,500 (in 2025, this increases to $11,250 for those ages 60-63).
Amazon employees who contribute at least 4% of their salary to the pre-tax and/or Roth 401(k) will receive a 2% match, up to a maximum of $6,900 in 2024 ($7,000 in 2025).
Assuming you make $160,000 a year, your matching funds from Amazon would be $3,200.
Given the facts above, you would be able to contribute an additional $37,300 to your after-tax 401(k)!
Pre-tax and/or Roth limit: $23,000
Amazon match at 2% of $160,000: $3,200
After-tax contribution limit: $42,800
Total contributions: $69,000
Add $7,500 to the pre-tax and/or Roth limit if you are over age 50.
Lastly, and VERY important! You’ll see a small dropdown menu below your after-tax enrollment on your contributions page in Fidelity NetBenefits that defaults to “don’t convert my after-tax to Roth.” Make sure to switch this to “convert my after-tax to Roth.”
The magic of the “mega back-door Roth” is this final step. When elected to “convert my after-tax to Roth” your after-tax contributions will be automatically converted to Roth (which makes sense), making all future investment growth completely tax-free! Fidelity completes this “in-plan Roth conversion” on a daily basis for you once elected. Because of this, there will be minimal to no tax upon conversion, because you have no investment gains to convert to Roth!
If you don’t elect this and leave it as is, all of the investment growth on your after-tax contributions will be taxable in the future. This is not the end of the world, but it’s certainly better to have tax-free growth on after-tax contributions if given the chance!
Tip #4: Consider Additional Investments
You’ll get a Fidelity NetBenefits Account as part of the sign-up process for Amazon’s 401(k). You’ll be able to use this account to manage just about any aspect of your plan.
Along with information on Amazon’s plan, Fidelity’s platform offers a menu of 26 investment options. There, you’ll find Exchange-Traded Funds (ETFs) and other options, including:
Index funds. These passively managed funds make it easy for people to invest in stocks. An index fund consists of stocks that mirror a given market index, such as the S&P 500.
Target date funds. This type of fund is named for its connection to an investor’s “target date” for retirement. Start by choosing a fund that matches your expected year of retirement. As that date gets closer, investments in the fund will shift to reduce risk over time.
Actively managed funds. Unlike passively managed funds, actively managed funds are run by people determining when to buy or sell investments. That extra workload usually equates to higher management fees. Still, it could pay off if the human touch helps your fund outperform the market.
Amazon stock fund. Giving you the ability to buy, sell, and receive matching contributions in your 401(k) in Amazon stock.
Other Benefits of Working with Amazon
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 Restricted Stock Units
Most salaried positions at Amazon are granted Restricted Stock Units, also known as Amazon RSUs, as part of the compensation package. The number of RSUs depends on your level and performance over time, and similar to Amazon’s 401(k), your shares will only vest after you’ve been with the company for a set period.
Why do RSUs work this way? Amazon awards RSUs to encourage team buy-in at every level of the business. As a form of equity compensation, Amazon’s success is mirrored as your success if you own a share in the company.
Amazon RSU 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.
The first two years of vesting are slower, which 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 ($3,300 in 2025).
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
As a tech employee, navigating your benefits isn’t always a straightforward path. When your compensation is a mix of base salary, bonuses, and RSUs, deciding what to contribute to your Amazon 401(k) is yet another thing to think about! A rock-solid financial and tax plan can help reduce your tax liability so you keep every dollar you deserve.
Consilio Wealth Advisors specializes in working with tech professionals at companies like Amazon. We understand the nuances of your financial picture, and we have 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. Ready to chat? Schedule a call with Consilio today.
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