Amazon’s 401k & Roth Conversion

Avier Wealth Advisors is not affiliated with Amazon. While Avier communicates with its clients regarding their Amazon employee benefits, and educates itself on the Amazon Benefits, there is no guarantee that the information we have provided is accurate. Amazon employees are encouraged to contact their employer should they have any questions regarding their specific employee benefits.

Amazon’s 401(k): The Basics

The Amazon 401(k) is a retirement savings plan that allows employees to invest a portion of their salary into long-term investments and save for their retirement. Your contribution is 100% vested from day one with the company. The 50% employer match on your first 4% contributed to the 401(k) vests after 3 years.

The tax benefits associated with a 401(k) plan include being able to make deductions from your salary on a pre-tax basis. This can lower your annual taxable income. Your 401(k) earnings accrue on a tax-deferred basis, meaning the dividends and capital gains accumulating within your plan are not subject to tax until they are withdrawn at retirement. Many people are in a lower tax bracket when they retire which compounds the tax reduction benefit of saving into a 401(k).

Amazon’s 401(k) Contribution Matching System

In 2021, you can contribute up $19,500 on a pre-tax or Roth basis into your 401(k), and if you’re age 50 or older, you can contribute an additional $6,500. Amazon will provide you with a 50% match on the first 4% contributed, meaning that they will contribute 2% of your base salary to your 401(k). If you’re making the max Amazon base salary ($160,000) and you put $19,500 into your 401(k), Amazon will contribute $3,200 as a match (2% of your base salary).

There are two ways that employees can contribute to their regular 401(k) ($19,500):

  • Traditional Pre-Tax 401(k): Make contributions before taxes. With this option, when you withdraw savings for retirement, you are taxed.
  • Roth 401(k): Make contributions after taxes. You don’t get a tax break up front, however, money withdrawn at retirement will not be taxed.

How Does the Amazon Mega Backdoor Roth Work?

The Mega Backdoor Roth is a powerful employee benefit within your 401(k) that allows Amazon employees to convert your after-tax dollars into a Roth 401(k) for tax-free growth and tax-free access in retirement.


This is an incredible benefit that can be better understood through a hypothetical example of an Amazon employee who is under 50, earning a base salary of $160,000 per year. As mentioned, in this scenario you can max out your regular 401(k) with a contribution of $19,500. Amazon will match 50% of your 401(k) contribution, up to 4% of salary, which in this example is $3,200 (2% of your base salary).

Typically, employees are limited in terms of how much that they can save into retirement accounts. Each year, if you’re under 50, you can set aside $19,500 into a 401(k), and another $6,000 into either a Roth or traditional IRA; if you’re over 50, you can save an additional $6,500 into your 401(k). Many people do not realize that the Federal limit for total 401(k) contributions is $58,000 (if you’re under 50) and $64,500 (if you’re over 50). The Amazon Mega Backdoor Roth 401(k) allows you to fill a portion of the gap between your regular contributions and the Federal limit using after-tax dollars. Employees can contribute up to 10% of their base salary each year and immediately convert those dollars into a Roth account within your 401(k).

The Federal limit for total dollars going into a 401(k) in 2021 is $58,000. Using the Mega Backdoor Roth benefit, Amazon will let you contribute up to 10% of your base salary to the after-tax portion of your 401(k) and subsequently convert it to a Roth. So with our hypothetical $160,000 base salary that means Amazon would let you contribute (if you start in January) $16,000 to the after tax part of the 401(k) over the course of the year. Those dollars can then be immediately converted to Roth.

These after-tax contributions are limited to 10% of each respective paycheck, so you can’t just put 10% of your salary in in a lump sum. So, for Amazon employees looking to take advantage of this benefit, the sooner that you make the after-tax election, the more that you will be able to save.

Another brand-new feature for 2021 is that Fidelity now allows for the automatic conversion of these after-tax dollars to Roth. You will want to make sure that within the contribution section of your 401(k) under Roth in-plan conversion, you select ‘Convert after tax to Roth’. That way any growth within the account will essentially never be taxed.

Sustainable & Diversified Investing within Your Amazon 401k

Sustainable Investing, also known as Socially Responsible Investing (SRI), means incorporating Environmental, Social, and Governance (ESG) criteria into the investment selection process. Essentially, this allows you to invest in a way that aligns with your values without necessarily compromising diversification or returns.

There is currently one socially focused fund option within your regular Amazon 401(k), but by utilizing the Fidelity BrokerageLink option in your 401(k), you can gain access to hundreds of SRI mutual funds and ETFs.


For more information and advice from our Amazon-focused advisors visit our main Amazon page, or other pages focused on Amazon Compensation and Miscellaneous Benefits, or Amazon RSUs.





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