Amazon’s 401k Match Explained

Amazon 401K: Important Things You Should Know About!

If you are a software engineer receiving your first six-figure offer from Amazon, you must be beyond excited. However, in addition to the annual base salary, at Levels.fyi, we suggest that you also pay attention and gain a thorough understanding of the full array of offered benefits and eligible compensations, including Amazon's 401k match, sign-on bonus, and relocation benefits. Having knowledge of these will allow you to take advantage of your full compensation and negotiate better deals.

This article will answer questions on everything you need to know about Amazon's 401k contributions and match, along with other considerations to take into account.

Amazon's 401k Contributions and Company Match

As of January 2020, Amazon employees have access to the new Amazon Mega Backdoor Roth Conversion or after-tax contribution to the 401k plan. But what does it mean for you as an Amazon employee, and how can you benefit from it?

How Much Does Amazon Match Employees' 401k Contributions?

With Amazon's 401k contribution retirement plan, you can contribute up to $19,500 per year if you are under the age of 50 and an additional $6,500 per year if you are over 50.

In this example, let us focus on employees who are under 50.

If you contribute the maximum amount of $19,500 per year, Amazon's 401k match will equal to 50% on your first 4% contributed. This means that Amazon's contribution to your 401k plan will translate to 2% of your base salary.

Let's say your base salary is $160,000 per year. After you contribute $19,500 to your 401k, Amazon is going to put an additional 2% of your base salary ($3,200) as a match.

Mega Backdoor Roth Conversion

As of 2020, the Federal limit for the total amount going into a 401k per year is $57,000.

With Mega Backdoor Roth Conversion, Amazon now lets you put up to 10% of your base salary into the after-tax portion of your 401k plan and subsequently convert it to Roth.

Going back to the example where you were making a base salary of $160,000. With Mega Backdoor Roth, Amazon will let you put 10% of every paycheck to your 401k, translating to $16,000 over one year.

You will then need to contact Fidelity to make sure that this after-tax amount is converted to Roth.

How Can You Reduce Taxes with Amazon's Mega Backdoor Roth Conversion?

Mega Backdoor Roth Conversion allows you to reduce the total amount of taxes you pay.

If you are planning on saving money beyond your 401k, chances are you are going to put them in a brokerage account. With these accounts, you have to pay taxes every year.

For example, suppose you have a brokerage account. In that case, you need to pay taxes on interest income, capital gains, and interest every year, which can seriously drag your investments' performance in the long run.

On the other hand, if you save extra money into a Roth through Mega Backdoor Conversion, you have it saved safely, while all the interest, dividends, and capital gains are tax-free.

Amazon's 401k Contributions as Compared to Other Companies

Similar to Amazon, Facebook, Microsoft, and Google match 50% of employee contributions. Unfortunately, Amazon's maximum contribution is up to 4%, while competitors like Facebook and Microsoft offer 7% and 6%, respectively.

Facebook's and Microsoft's 401k vesting is immediate. With Amazon, on the other hand, you will not get your match until you stay with the company for three years. Amazon often pays out in company stocks, but employees are free to redirect according to their personal financial plan.

Check out our ranking of FAANG 401k plans for more detailed information.

Other Amazon Benefits to Consider

A mix of benefits you receive from a company can have a significant impact on your future wealth. When considering a job offer, you need to think about various aspects and how they compare to competitors.

Other benefits offered by Amazon include:

  • Base pay. As compared to other big tech companies, Amazon's base pay isn't the highest. For example, a "software engineer" position at Amazon pays $162K a year, while the same position at Google or Facebook offers a bit more.
  • Sign-on bonus. Amazon offers an enormous sign-on bonus, which can be up to 35% of your total compensation, distributed over the first two years of employment.
  • Cost of living. Employees at Amazon and Microsoft living in Seattle enjoy a lower cost of living than Silicon Valley, where Facebook and Google are based.
  • Relocation packages. Amazon offers generous relocation packages. You can select either a single lump-sum payment of around $10K you can use toward moving expenses or a relocation package that includes housing and moving services.
  • RSUs. Amazon's Restricted Stock Units (RSUs) are paid out over four years with an increasing vesting amount, starting at 10% in the first year. Above-average stock performance over time is one of the strongest parts of Amazon's benefits package.
  • Other considerations . Amazon enjoys an excellent business reputation, with 74% of its current employees recommending work opportunities to their friends. However, Amazon lacks some of the benefits offered by other tech giants, such as student loan payment match, family planning benefits, educational grants, and more.

See Amazon Benefits page to learn more about the variety of benefits Amazon offers.

Negotiate Your Total Compensation with Levels.fyi

When applying for a job with Amazon, you need to consider Amazon's 401k match and other company benefits. Even small differences in compensation can translate into significant differences in financial goals over the years.

The good news is you can use the salary negotiation service from Levels.fyi to negotiate the best mix of benefits and total compensation for your long-term wealth. Book your one-on-one consultation with our negotiation specialists today.

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