Common Questions for Amazon Employees Nearing Retirement
When nearing retirement age after years of service at Amazon, you’re bound to have questions. Do you have enough saved up? When should you use your Amazon 401(k)? What benefits will follow you into retirement?
When nearing retirement age after years of service at Amazon, you’re bound to have questions. Do you have enough saved up? When should you use your Amazon 401(k)? What benefits will follow you into retirement?
At TrueWealth Financial Partners, we've spent years helping professionals like you make the transition into retirement. Here are the answers to the most common questions we hear.
The Basics of Your Amazon 401(k) Plan
1. When can I start taking distributions from my Amazon 401(k) plan?
You can start making penalty-free withdrawals from your Amazon 401(k) when you reach age 59½ or when you want to withdraw money that you rolled over into your Amazon employee fund from a previous employer. If you leave Amazon at age 55 or later, you may qualify for the rule of 55, which allows penalty-free withdrawals from your 401(k).
2. What happens to my Amazon 401(k) match if I retire before fully vesting?
Amazon’s 401(k) employer match takes three years to fully vest. If you leave before that period is up, you will lose the unvested portion of your matching contributions. However, your personal contributions are immediately vested and will always remain yours.
3. What are my options for my Amazon 401(k) when I retire?
When you retire from Amazon, you generally have four options for your 401(k):
Leave it in the Amazon 401(k) plan (if your balance exceeds $5,000)
Roll it over to an IRA
Roll it over to a new employer's 401(k) plan (if applicable)
Take a distribution (subject to taxes and possibly penalties if under 59½)
Rolling over your Amazon 401(k) into an IRA is a great way to keep track of your retirement savings and make sure you're in control of your investments.
Required Minimum Distributions (RMDs)
4. Does the Amazon 401(k) have RMDs?
Traditional (pre-tax) contributions to your Amazon 401(k) are subject to RMDs. Roth contributions are not. You can leave your funds in a Roth 401(k) to grow for as long as you choose.
5. When do I have to start taking RMDs from my Amazon 401(k)?
For pre-tax 401(k) contributions, you must take your first RMD for the year in which you reach age 73. However, if you're still working at Amazon past age 73 and don't own 5% or more of the company, you may be able to delay your first RMD until April 1 of the year following your retirement.
6. How are Required Minimum Distributions calculated?
The IRS uses a formula that includes your total account balances, your age, your life expectancy, and your beneficiaries' life expectancies. Here’s how it works:
Find the fair market value of your 401(k) account as of December 31 of the prior year.
Use the IRS life expectancy tables to find the distribution period that corresponds to your age:
Uniform Lifetime Table: Use this if your spouse is not more than 10 years younger than you or is not your sole beneficiary.
Joint Life and Last Survivor Table: Use this if your spouse is more than 10 years younger and is your sole beneficiary.
Divide your account balance by the life expectancy factor. For example, if your 401(k) balance is $100,000 and your life expectancy factor is 25.6, your RMD would be approximately $3,906.25 ($100,000 ÷ 25.6).
7. What happens if I miss taking my Required Minimum Distribution?
The IRS penalty for not taking an RMD on time, or for taking less than the required amount, is generally hefty: 25% of the amount not taken by the deadline. If the RMD is corrected within two years, the penalty for not fulfilling RMD requirements can be reduced to 10%.
8. Can I take more than my Required Minimum Distribution?
Yes, you can always withdraw more than your RMD amount. The RMD is simply the minimum you must withdraw each year. There is no maximum limit on how much you can take from your retirement accounts once you've reached age 59½ (or age 55 under the rule of 55).
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Taxation & Social Security
9. Will my Amazon 401(k) distributions be taxed?
This depends on whether the distribution comes from traditional (pre-tax) or Roth 401(k) funds.
Distributions from a traditional 401(k) are taxed as ordinary income in the year you take the distribution.
Distributions from a Roth 401(k) are tax-free as long as they are qualified (generally meaning you are 59½ years old and have held the account for at least 5 years).
10. How can I minimize taxes on my Amazon 401(k) distributions?
Several strategies can help minimize taxes on 401(k) distributions:
Spread distributions over multiple tax years
Consider Roth conversions before RMDs begin
Coordinate distributions with other income sources
Use qualified charitable distributions (QCDs) once you reach age 70½
A fiduciary financial advisor can help you optimize your 401(k) strategy for the lowest tax burden.
11. How will my Amazon 401(k) withdrawals affect my Social Security benefits?
401(k) contributions and withdrawals do not affect Social Security benefits. However, your 401(k) withdrawals will count as income when determining if your Social Security benefits are taxable.
12. Should I take Social Security before or after starting my Amazon 401(k) withdrawals?
This will vary based on your financial situation. If you expect to have significant 401(k) withdrawals, it may make sense to delay your Social Security to receive higher lifetime benefits.
Health Benefits & Medicare
13. Does Amazon offer retiree health benefits?
Amazon does not currently offer a formal retiree health benefit program. Once you retire, you'll need to explore options like COBRA (for temporary coverage), the healthcare marketplace, or Medicare if you're eligible.
14. When should I sign up for Medicare if I'm retiring from Amazon?
You should sign up for Medicare during your Initial Enrollment Period, which begins three months before the month you turn 65 and ends three months after. The sooner you can get Medicare coverage, the better.
15. How much should I budget for healthcare costs in retirement?
According to a Fidelity Retiree Health Care Cost Estimate, the average 65-year-old retired couple will spend around $315,000 on health care expenses in retirement. This makes it imperative to save as much as possible for healthcare expenses when planning for retirement.
16. Can I use my Health Savings Account (HSA) in retirement?
Yes, if you have an HSA, it can be a valuable resource in retirement. HSAs offer triple tax advantages:
Tax-deductible contributions
Tax-free growth
Tax-free withdrawals for qualified medical expenses
For Amazon employees nearing retirement, it's worth noting that HSA funds can be used to pay for Medicare premiums once you reach age 65.
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Mega Backdoor Roth Strategy
17. How does Amazon's mega backdoor Roth option work?
Using Amazon’s mega backdoor Roth program, you can contribute after-tax funds to your 401(k) beyond the usual limits, then convert those funds to a Roth IRA. This can greatly increase your ability to save for retirement.
18. Is it still worth using the mega backdoor Roth if I'm close to retirement?
Yes, it can still be beneficial even if you're nearing retirement. The mega backdoor Roth provides tax-free growth and withdrawals regardless of your age. This can be especially valuable if you expect to be in a high tax bracket in retirement or want to leave tax-free assets to heirs.
19. What happens to my mega backdoor Roth contributions if I retire mid-year?
If you retire mid-year, you'll only be able to contribute up to your retirement date. Be sure to calculate the maximum contribution carefully, as over-contributions can result in tax complications. Any conversions already completed will remain in your Roth account.
Retirement Timing & Strategy
20. What's the optimal age to retire from Amazon to maximize my benefits?
Unfortunately, there's no one-size-fits-all answer to this. However, some factors can help you make an informed decision. For example:
Do you have enough money saved up to fund your preferred lifestyle in retirement?
Have your Amazon matching contributions fully vested?
Are you 59½ (or at least 55 per the rule of 55), allowed penalty-free withdrawals from your 401(k)?
How far are you from Medicare eligibility at 65?
Will you be able to delay your Social Security benefits, increasing your lifetime income?
By going over these questions with your financial advisor, you can determine the right timing for your retirement.
21. How do Amazon restricted stock units (RSUs) factor into my retirement planning?
At Amazon, most employees are compensated in part through restricted stock units (RSUs). Unvested RSUs typically forfeit upon retirement, so consider timing your retirement after significant vesting dates if possible.
22. Should I take a lump sum distribution or periodic payments from my Amazon 401(k)?
This depends on your individual financial needs and tax situation.
Periodic payments can spread your tax liability over multiple years and provide regular income.
A lump sum might make sense if you're rolling over to an IRA or need funds for a specific purpose.
23. What steps should I take before retiring from Amazon?
When you’re preparing to retire from Amazon, you should:
Review your 401(k) balance and vesting status
Estimate your projected retirement income from all sources
Review your asset allocation and consider making it more conservative
Attend any retirement planning workshops offered by Amazon
Meet with a fiduciary financial advisor who specializes in retirement finances
Get Help from TrueWealth Financial Partners
At TrueWealth Financial Partners, we specialize in helping Amazon employees navigate the complexities of retirement planning. Our advisors understand the unique benefits and challenges you face as an Amazon employee approaching retirement.
We can help you:
Create a personalized retirement income strategy
Optimize your Social Security claiming strategy
Develop a tax-efficient withdrawal plan
Manage your investment portfolio in retirement
Coordinate your healthcare coverage and costs
Navigate the transition from employee to retiree
Ready to take the first step to a better retirement? Schedule a free consultation with one of our fiduciary financial advisors, and we can get started on making your golden years truly golden.
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