Amazon provides their employees with a robust benefits package. Here’s a look at how you can optimize your benefits as an Amazon employee:
Amazon offers a relatively low 401K match. The Company will match 50% of your eligible contributions up to 4% of your eligible pay. Thus the maximum match from Amazon is 2% of your salary.
Employees can contribute from 1% to 90% of their eligible pay on a pre-tax basis, a Roth after-tax basis, or both, subject up to the annual IRS limits. For 2022, the limit is $20,500 ($27K if you turn 50 or older in 2022).
Amazon Mega Backdoor Roth
Amazon’s 401K plan allows employees to make Mega Backdoor Roth contributions. For 2022, the Federal limit for total contributions to a 401K is $61K. To make a backdoor contribution you would first max out your normal 401K contribution of $20,500 while receiving Amazon’s match of up to 2% of your salary. Let’s say your salary is $160K and you contribute $20,500. Amazon would then match 2% of that $160K salary which is $3,200. That would leave you an additional $37,300 you can contribute to hit the $61K 401K limit. Thus you would make a $37,300 after-tax contribution to your 401K and use the plan’s option to roll that money into a Roth. Here’s an illustration of this example:
Here’s the steps you would take to implement the Mega Backdoor Roth at Amazon:
Restricted Stock Units (RSUs)
RSUs frequently make up a large portion of compensation at Amazon. Amazon’s vesting schedule is more heavily weighted towards later years than most other companies with heavy stock compensation.
Here’s the typical vesting schedule for Amazon RSU compensation:
- Year 1: 5%
- Year 2: 15%
- Year 3: 40%
- Year 4: 40%
Because Amazon’s RSUs are a big portion of many employees compensation package and are heavily weighted to years 3 and 4, Amazon employees are more dependent on Amazon’s stock performance than many other workers. Given the fantastic performance of Amazon stock over the past decade employees haven’t had much cause for complaint. However, this can cut both ways and could be a significant risk for an employee moving forward. From a planning standpoint I nearly always recommend Amazon employees sell their RSUs as soon as they vest and instead put that money into an investment allocation better suited to the employee’s goals and risk tolerance
Amazon offers a number of medical insurance plans for employees. One option is a high deductible health plan that offers a Health Savings Account (HSA).
The 2022 contribution limit to an HSA is $3,650 for an individual and $7,300 for a family. That limit includes employer contributions made on your behalf. Amazon has been contributing $500 for an individual, $1,000 for a married employee, and $1,500 for a married employee with kids.
Personally I’m a fan of HSA plans. HSA funds are a great vehicle as they grow tax-free and have no required withdrawals. As long as withdrawals are used for qualified medical expenses any withdrawals are tax free.
Basic vision and dental are also offered as part of Amazon’s health insurance packages.
Amazon offers employees free life insurance equal to two times their annual base salary up to $500K. Supplemental insurance in amounts of 1x to 10x your base annual earnings can be purchased, up to $2M. For those with dependents who may need supplemental insurance I would recommend comparing the cost of supplemental insurance offered through Amazon with a couple outside providers to find the best option for you.
Coverage is also available for purchase for spouses (up to $250k) and children (up to $20k).
Amazon provides both short-term and long-term disability coverage to full time employees free of charge. Amazon’s disability insurance covers 60% of an employee’s salary but doesn’t include RSUs or other compensation. After 180 days on Amazon’s short-term disability plan, an employee will switch to the long-term plan. Amazon’s long-term disability pay includes salary and RSUs for up to two years.
If you want to learn more about how to optimize your benefits for your financial situation, please schedule a complimentary call today.
Scott Caufield, CFA, CPA