The Amazon 401(k) is one of the best accounts you can use to supercharge your retirement savings plan. Employees can invest a portion of their salary in long-term investments and save for retirement. Your contribution is 100% vested from day one. The 50% match for your first 4% contributions vests after 3 years.

One of the many benefits of a 401(k) plan is that you can deduct your contributions from your income on a pre-tax basis. This helps to lower your annual taxable income which in turn lowers your tax bill. This makes it easier to afford to save more money for your future.

Your 401(k) earnings grow on a tax-deferred basis, meaning the dividends and capital gains accumulating within your plan are not subject to taxes until they are withdrawn at retirement. Many people are in a lower tax bracket when they retire, which increases the tax savings benefit for saving into their 401(k).

Amazon’s 401(K) Contribution Matching System

In 2022, you can contribute up to $20,500 on your pre-tax or Roth 401(k) plan. Amazon will match 50% of the first 4% contributed, which is 2% of your base salary if you’re 50 or older. For example, if you make $160,000 and contribute $20,500 to your 401(k), Amazon will contribute $3,200 as a match (2% of your base salary).

Employees can make 401(k) contributions through two ways:

Traditional 401(k) Pre-tax: You contribute before taxes. When you withdraw from the account for retirement, you are subject to taxation.

A Roth 401(k) allows you to earn a tax break at retirement, but there’s no upfront tax break. The benefit is, no matter how much your money grows, you won’t owe taxes on it as long as you wait until the greater of you turning 59.5 years old or leaving the funds in the account for over 5 years.

How Does The Amazon Mega Backdoor Roth Work?

Amazon employees can take advantage of a powerful employee benefit called the Mega Backdoor Roth. Using this method, you can convert your after-tax dollars into a Roth 401(k) for tax-free growth and tax-free access in retirement.

Amazon employees can now save an extra $37,000 for retirement! The provision that was previously announced in early 2022 just got boosted to this size.

Prior to the announcement, Amazonians were limited to contributing only 10% of their salary. Now, employees will be able to contribute up to the Federal 401(k) limit towards the after-tax portion of their 401(k), which can then immediately be converted to Roth. There is no tax on future growth and qualified distributions from a Roth IRA, whereas withdrawals from a traditional IRA are subject to income taxes as well as a 10% penalty if you’re under 59 1/2 years old.

Ensuring your financial future is important, and this can be better understood through a hypothetical scenario of an Amazon employee under 50. In this scenario, you could max out your regular 401(k) with a contribution of $20,500. Amazon will match 50% of your 401(k) contribution, up to 4% of salary–in this example, $3,200 (2% of your base salary).

Typically, employees are limited in how much they can contribute to retirement accounts. The maximum limit of tax-deferred contributions is $61,000 (if you’re under 50) and $67,500 (if you’re over 50). People often don’t realize that the total 401(k) contribution limit is also $61,000 (under 50) and $67,500 (over 50).

The Amazon Mega Backdoor Roth 401(k) allows employees to contribute up to 90% of their base salary each year and immediately convert those dollars into a Roth account within their 401(k). That’s $37,000 in this hypothetical example. Let’s say an employee has a base salary of $160,000 per year. That means they can contribute ~$37,000 to the after-tax part of their 401(k) over the course of the year, which would then immediately be converted to a Roth account.

You will have to make your contribution elections inside Fidelity Net Benefits. It’s very important that after you decide on the amount of after-tax dollars you’ll contribute, you select ‘Convert after-tax to Roth’. That way any growth in the account will never be taxed.