So, you received RSUs from Amazon and you’re curious to learn more about them because you aren’t sure about how they’re taxed, how you earn money with them, and how best to leverage this potentially life-changing form of compensation. If you’re looking to learn, continue reading on.
What are RSUs?
Restricted Stock Units (RSUs) are shares of Amazon stock that Amazon employees are awarded as a part of their total compensation package. Unfortunately, you don’t receive the ability to sell all your shares at once. Instead, Amazon gives you control of shares in chunks every year following your first employment anniversary. For many employees of Amazon, their RSUs make up a significant portion of their earning ability with the company so, it’s important you plan accordingly.
When Do Amazon Employees Receive RSUs and When Do They Vest?
As an Amazon employee, you will receive RSUs (Restricted Stock Units) on the grant date, which is typically the date of Amazon’s annual shareholder meeting. The number of RSUs you receive will be based on your position and compensation at Amazon.
Your RSUs will vest over a four-year period starting on your first employment anniversary, with:
- 5% vesting on the first anniversary of the grant date
- 15% more by the end of year two
- 20% more after 30 months of employment
- 20% more by the end of year three
- 20% more at 42 months of employment
- 20% more at your year 4 mark
What Should I Do With My Amazon RSUs?
When your RSUs vest, it’s essentially the same thing as receiving a cash bonus. You’re taxed the same on it as you would cash so think about it as if you received cash instead of stock (except, not doing anything means your cash remains invested in Amazon’s stock).
Your options include the following:
- Should you keep that cash invested in Amazon’s stock?
- Should you build up emergency savings?
- Should you pay off debt?
- Should you buy a house?
- Should you save it and invest it in a diversified portion of low-cost ETFs via a combination of 401k, IRA, HSA, Backdoor Roth IRA, etc?
- Should you donate the cash?
Here are a few things to consider:
1. Do you have a financial plan?
Having a financial plan in place is always a good idea, regardless of your situation. Everyone who has financial goals in life needs a plan in order to meet them so, if you don’t have a financial plan, you probably should create one because by creating one, it’ll help you make more well-informed decisions about how to use your RSUs.
2. What are your long-term goals?
Do you want to retire early? Save for a child’s education? Build up your emergency fund? Your goals will affect how you use your RSUs. For example, if you’re aiming for retirement, you may want to invest the money in order to grow it over time.
3. What is your tax situation?
RSUs are considered taxable income when they vest, so you’ll need to factor that into your plans. Normally most companies withhold the tax rate that your payroll department instructs them to, however, this may be inaccurate. Your spouse’s income and your non-retirement accounts are rarely considered. Talk to a financial advisor or tax professional if you’re not sure how this will impact you.
At Progress Wealth Management, we encourage you to sell your RSUs immediately after they vest and make your own decision on what to do with the proceeds given your financial goals. This may include a variety of different options.
If your students are incredibly expensive and get in the way of you and your family living life, you may want to consider paying them off.
If your biggest goal is you want to retire early and your biggest problem is you can’t afford to, you may want to consider investing them in a well-diversified portfolio.
Living in Seattle or New York isn’t cheap and you may want to buy a house. The funds you receive may be what you need to afford to put a decent down payment on a home so you can build a family.
Amazon RSU Tax Withholding
If you’re an Amazon employee who has received RSUs, you’re probably wondering about the taxes you’ll owe on them. Here’s what you need to know about Amazon’s RSU tax withholding policy.
When you vest in RSUs, Amazon will withhold taxes at 22%. Now, that’s not a particularly high tax rate and if you’re earning a good living, this may not be enough. This means you may be surprised come April by an enormous tax bill.
Just imagine if your tax rate is 35% or higher and you have 500k in RSUs vest… you’d expect a 175k tax bill (500k x 35%) as opposed to 110 (500k x 22%). If you didn’t sell and diversify and Amazon’s stock plummeted, you could find yourself in a pickle and be forced to get a loan or worse.
This is why Progress Wealth Management projects our client’s future tax bills with every major financial event in their lives. We want our clients to be prepared and know what to expect at each step of the way.
Investing Strategies for Amazon Employees
If you’re an Amazon employee it’s important to understand your compensation structure and to develop an investment strategy that plans for your earning ability to grow substantially over the years. When you initially start at Amazon, your compensation won’t be great for the first two years of employment. Once you reach year three, four, and beyond, you’ll find that your compensation is substantially more. This should impact your decisions with your RSUs and how you save for your financial future.
In the following video, our founder will walk you through an example of how to automate your investing over the years, thereby helping you to grow your ability to save, better manage your concentrated stock risk and boost your ability to reach your short-term and mid-term financial goals.
How Does Market Volatility Affect Amazon RSUs?
When it comes to Amazon RSUs, market volatility can have a big impact. If the stock price is volatile, it can affect the number of RSUs that vest and the value of those RSUs. When the stock price is down, fewer RSUs will vest and the value of each RSU will be lower. When the stock price is up, more RSUs will vest and the value of each RSU will be higher. This can make it difficult to plan for Vestment Events and to budget for taxes associated with those events.
More Amazon Insights
For more information and advice from our tech employee-focused financial advisors, please visit our main Amazon page, or other pages focused on Amazon Compensation Negotiation, Amazon Focused Compensation Planning, Miscellaneous Benefits, or Amazon RSUs.