Getting the Most from Your Amazon Benefits

Amazon provides generous company benefits that can help you build wealth, manage risk, and secure your future. It’s important to consider how to best integrate the additional compensation, retirement, and health benefits into your financial plan.

Equity Awards

Your grants of Amazon restricted stock units (RSUs) can help increase your cash flow or meet long-term goals. Regardless of how you choose to use the proceeds, you will need to pay income taxes as your shares vest. Amazon will automatically withhold 22% of the value of your shares before they post to your account at your selected broker (either Morgan Stanley or Fidelity).

As your compensation increases, you may find yourself in a higher tax bracket, requiring greater withholding. If your income and/or vested share amount is increasing, determine if you need to make estimated tax payments or increase your tax withholding elections on the broker portal directly. Consult your CPA or contact a Coldstream Wealth Manager to see if you might be subject to underpayment penalties.

Vesting schedules vary but are often spread over a four-year period. The schedule may also be weighted heavily to the last half of the vesting period. If you are subject to restricted trading windows, a 10b5-1 trading plan can simplify the process, automatically sell shares upon vest, and ensure you comply with insider trading guidelines.

Note: any unvested Amazon RSUs are terminated and forfeited upon voluntary or involuntary termination of your employment for any reason (including as a result of death or disability).

Retirement Savings

Pre-Tax 401(k) and Roth 401(k)

Your Amazon 401(k) plan allows you to contribute pre-tax and/or after-tax (Roth) dollars. The IRS employee deferral annual limit of these contributions is $22,500 in 2023. Employees over 50 years of age can make an additional $7,500 in annual contributions (pre-tax or Roth). Each option offers financial benefits that impact your current and future tax situations in different ways. The Roth 401(k) option reduces your tax impact at withdrawal, while the traditional pre-tax 401(k) reduces your current taxable income.

Rule-of-Thumb: if you expect your tax rate to be higher in retirement, it may be best to choose the Roth 401(k) now, or fund both types of 401(k) plans to provide tax diversification. Whichever plan (or combination) you choose, we suggest you make the maximum annual contribution, if possible, to maximize retirement savings.

Amazon Matching

Amazon matches up to 4% of pay at the rate of 50%. Think of this as a 2% annual raise. Employer matching contributions become 100% vested after three years of employment and employee contributions are always fully vested. If you are a highly compensated employee, your contributions to the plan may be limited.

After-Tax 401(k) or What’s Known as the “Mega Backdoor Roth”

In addition to the $22,500 employee-deferral limit, Amazon permits their employees to contribute an additional amount to an after-tax 401(k). This should not be confused with the Roth 401(k) contributions previously discussed. The IRS maximum 401(k) contribution limit is $66,000 and is inclusive of the employer match. This after-tax contribution is often called a “Mega Backdoor Roth.” It’s a highly appealing strategy for employees that have the means to contribute. You are taxed on all contributions into the after-tax portion of the 401(k).

Once the contributions are made to the account, you have two options:

1. Do not convert to Roth: your contributions will not be taxable upon withdrawal, but your earnings will be taxable when distributing the funds (similar to how a traditional pre-tax 401(k) works).
2. Convert after-tax to Roth: both contributions and earnings can grow tax-free. If you elect to auto-convert the after-tax contributions on Morgan Stanley or Fidelity’s website, the full conversion is a tax-free event (since it will be 100% basis).

Please consult a Coldstream Wealth Manager on how to request a Roth in-plan conversion for existing after-tax contributions or to determine if this strategy is right for your financial situation.

How much can you contribute to this after-tax 401(k)? For example, if you are under 50 years of age and maximize your employee deferral amount ($22,500 in 2023), and Amazon matches $6,600 (assuming $350,000 salary), this would allow you to contribute $39,600 into your after-tax 401(k) as highlighted below.

Maximum 401(k) Contribution Illustration

Investing your 401(k)

The Amazon 401(k) plan is administered by Fidelity Investments. Fidelity provides a selection of investments with low fees and self-directed investment options. The default investment is the Vanguard Target Retirement Fund nearest the year you would reach the age of 65. You may want to select a different target-date fund or specific investments depending on your retirement goals and risk tolerance.

Health Insurance

You have the option to choose from six comprehensive plans which include a variety of deductibles, out-of-pocket maximum costs, and prescription costs.

1. Shared Deductible (HRA)
2. Standard
3. Health Savings Account (HSA)
4. Kaiser HMO
5. In-Network Only
6. In-Network Only (Basic Plan)

Amazon also has the following medical benefits for their employees:

• Amazon Pharmacy and RxPass for prescription delivery services
• Amazon Clinic for medical advice on common conditions with no appointments necessary
• One Medical (at an additional annual cost) for 24/7 video chat or messaging options with doctors for more convenient and quick scheduling

Open Enrollment

Open Enrollment for 2024 Amazon benefits is October 18^th – November 8^th, 2023. It is important to remember that if you don’t enroll or make changes during this window, your current benefits (except Flexible Spending Account, “FSA,” elections) will roll over to next year at the new rates.

If you have a 2023 FSA and want one for 2024, you must enroll in a new FSA during Open Enrollment – these accounts do not roll over year-to-year.

Besides price increases for premiums, the only new change that Amazon is offering is new Supplemental Life Insurance policy options. Employees can enroll or increase their coverage by 1x their salary with no medical exam or questions asked (even if initially declined coverage in the past).

Health Savings Account (HSA)

The HSA Plan has the highest deductible, but it features a medical savings account that you can fund with pre-tax income plus contributions from Amazon. For 2023, you can contribute up to $3,850 as an individual or $7,750 as a family (increasing to $4,150 and $8,300 in 2024, respectively). If you are over age 55, another $1,000 can be contributed to the HSA as a catch-up contribution and the annual limit is inclusive of the employer contribution. Amazon currently contributes:

• $500 for employee-only health coverage
• $1,000 for employee plus spouse/domestic partner or employee plus children, or
• $1,500 for an employee plus spouse/domestic partner with children

HSA funds grow tax-free and the withdrawals to pay for qualified medical expenses are also tax-free. The money is yours to keep, even if you leave Amazon. Given their unique tax treatment and ability to invest contributions, HSAs can also be used to supplement your retirement health savings.

Flexible Spending Account (FSA)

An FSA allows you to save for health and dependent care costs using pre-tax income. If you do not have an HSA, you may contribute up to $2,850 per year to a general-purpose Health Care FSA. You may also contribute up to $5,000 a year to a Dependent Care FSA (subject to income limitations). Funds in your Dependent Care FSA can be used for certain childcare expenses or to care for senior citizens who live with you and are claimed as dependents on your federal tax return.

Unlike an HSA, FSA funds must be spent by the stated deadline to avoid forfeiting any of the savings, as only $610 of contributions are allowed to be rolled forward from 2023 to 2024. The deadlines are March 31^st for the Dependent Care FSA and May 31^st for the Healthcare FSA following the calendar year in which you contributed to the plan. You may submit claims for reimbursement until June 30, 2024. An FSA is best used for large pre-planned medical or dental expenses, such as orthodontics.

Life Insurance

Amazon offers a life insurance benefit of twice an employee’s annual base salary at no cost, up to $500,000. Another $500,000 of accidental death and dismemberment (AD&D) insurance coverage applies for death or injuries resulting from a covered accident. You may purchase additional coverage for up to 10 times your salary, with a maximum benefit of $2 million.

Life insurance premiums are age-based. Typically, health exams are not required for basic coverage, but the insurance company may require an exam for higher benefit levels. The policy is not portable, so you might consider buying separate life insurance if you think you may leave the company. Additional coverage is available for purchase for spouses (up to $250,000) and children (up to $20,000).

Amazon also provides additional life insurance protection via partial acceleration of RSU awards. Your beneficiary will receive accelerated vesting of all RSUs that were scheduled to vest over the next two years. All other RSUs would be cancelled upon death.

Disability Insurance

Amazon provides coverage for 60% of an employee’s salary (up to certain limits) in the event of a disability. Short-term benefits have a seven-day waiting period and cover the first 26 weeks. After 26 weeks, long-term benefits begin.

Disability insurance paid under this plan is considered taxable income to the employee. Benefits may be paid up until age 65 (possibly longer if the disability occurs after age 60). Employees might consider purchasing a supplemental disability policy to cover a higher percentage of their income.

Individual Disability Insurance (IDI)

Starting August 1^st, 2023, Amazon also offers highly compensated employees (over $200,000 in total compensation) the option to enroll in a voluntary Individual Disability Insurance benefit through UNUM. This plan supplements existing long-term disability insurance and will cover a larger percentage of the employee’s total take-home pay in the event of a long-term disability. Up to $25,000 of additional benefit a month can be purchased at discounted rates that will come directly out of your payroll deductions. Premiums are locked-in until age 67, benefits received would be tax-free to the employee, and the policy and rate is yours to keep if you leave Amazon.

During the original 2023 enrollment period, if you had been actively working more than 90 days, evidence of insurability was waived. For future enrollment periods, a medical exam to prove insurability may be needed.

Other Benefits

• Donor Advised Funds with Fidelity: If you are charitably inclined, Fidelity Charitable offers up to a 50% discount on their annual administrative fees for Amazon employees (depending on the balance of the account). Donor Advised Funds, also referred to as Charitable Funds, come with special tax benefits. Learn more here.
• Critical Illness & Personal Accident Insurance: Amazon offers a few supplemental insurance plans that would pay a lump-sum directly to you in the case of a covered event (Accident or Critical Illness). These differ from your medical or disability insurance by paying the benefit directly to you for use on any type of expenses.
• Insurance Discounts: There are discounted rates available on insurance coverages you can enroll in or update any time during the year:
  • Property & casualty (home, renters, auto)
  • Pet insurance
• Legal Plan: These plans can be beneficial for a variety of legal needs including identity theft defense, traffic offenses, real estate, estate plans, and other personal or family legal matters. In our experience, group legal plans are not sufficient for managing more complex legal matters or detailed estate planning services.
• Family Services: Amazon has paid Pregnancy and Parental Leave programs, an Adoption Assistance program to reimburse qualified adoption expenses, as well as free membership portal options for child, elder care, and pet care services.
• Travel Benefits: Amazon offers discounts on leisure and travel (flights, hotels, etc.) and fast-tracks to higher status levels within some of these companies’ loyalty programs.
• Employee Discounts: Amazon also offers employee discounts on event tickets, cell phone services, restaurants, entertainment, sports, and more. Additionally, each calendar year a 10% discount can be used on Amazon merchandise (up to $100).

Reviewing Your Amazon Benefits

Amazon provides a wide range of financial benefits to employees, with some requiring careful consideration. If you have questions about which options are right for you or how they best fit with your tax and financial situation, consult a Coldstream advisor.

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