Maxing out 401k at Amazon using Mega Backdoor.

Amazon
D22_Htew68

Go to company page Amazon

D22_Htew68
Jan 22, 2021 23 Comments

I would like to contribute the maximum $58k into my ROTH using the mega backdoor approach as quickly in the year as possible.

It looks like the Amazon 401k plan at Fidelity limits the after-tax non-ROTH contribution to 10% of base salary. Per my calculations, that effectively draws out the contributions and limits it to ~$40k per year.

Am I thinking about this wrong?
Is there a way to get to the maximum $58k?
Will switching from Fidelity help?
What options do I have?

TIA

#personalfinance #investments #FIRE #401k

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TOP 23 Comments
  • What is the difference between a back door ROTH and straight up investing the cash using fidelity or a similar company? I assume it’s the taxes of investing after tax money and then getting taxed again when you pull it from direct investments. Am I missing something?
    Jan 22, 2021 10
    • You can withdraw initial investment after 5 year in roth. Growth is subject to tax and penalty on early withdrawal.
      Jan 23, 2021
    • Facebook
      2021ftw

      Go to company page Facebook

      PRE
      Google, Microsoft
      2021ftw
      You only pay the penalty if you withdraw earnings. You can withdraw the main capital 5 years after you have opened YOUR FIRST ROTH. So if you've already had any Roth open for 5 years, you can put money in today and take it out tomorrow.

      Also, you can withdraw everything no penalty if you retire early. Look up SEPP IRA.
      Jan 23, 2021
  • Amazon
    2CLdnV

    Go to company page Amazon

    2CLdnV
    It's correct that you can't hit the higher dollar IRS limits, that's enforced by Amazon so that they don't go against the IRS' company-level restrictions on 401k contribution disparities between employees with higher vs lower salaries.

    See the "Employee Retirement Income Security Act", companies providing 401ks need to prove their plans don't overly favour employees earning over $130k. Amazon limits to 10% of your salary going into an after-tax 401k (after the base $19.5k basic limit for traditional + Roth 401ks) to satisfy auditors during the annual 401k discrimination test.

    There are a lot of fulfillment center workers who have lower salaries so that any mega backdoor contributions are almost exclusively useful for high earning employees, so Amazon has to throttle more than tech companies that don't have physical warehouses and stores.

    Could they raise this limit and still be in the clear with the IRS? I'm not sure.
    Jan 22, 2021 2
    • Amazon
      D22_Htew68

      Go to company page Amazon

      D22_Htew68
      OP
      That's interesting. Had no idea there was a discrimination test employers have to pass.
      Jan 22, 2021
    • New
      zDHT25

      New

      zDHT25
      I really don't think they can. They had trouble a few years back where 401k contributions were returned to the employees due to failing this test.
      Jan 23, 2021
  • Lyft
    puzzling

    Go to company page Lyft

    puzzling
    I thought Amazon had no after tax contributions
    Jan 22, 2021 1
  • Microsoft / PR
    $RYCEY πŸ“ˆ

    Go to company page Microsoft PR

    BIO
    godlike
    $RYCEY πŸ“ˆ
    If its like msft the 58k includes pre tax contribution. So 19.5k of the 58k is going to 401k. The rest can roll into roth ira. So the max you can contribute to roth ira is 38.5k
    Jan 22, 2021 2
    • Amazon
      D22_Htew68

      Go to company page Amazon

      D22_Htew68
      OP
      Yes. But given Amazon limit of 10% of eligible compensation, the 3rd bucket of contribution you called roth ira can only go to $16k. So with employer match of $3.2k, the true maximum at Amazon seems to be $38.7k (i.e. 19.5+16+3.2). I'm just wondering if there's a way to get to the $58k.
      Jan 22, 2021
    • Amazon
      dimsum1

      Go to company page Amazon

      dimsum1
      No - you can’t do anything else other than asking HR to bump up limits
      Jan 22, 2021
  • Google
    TqNW10

    Go to company page Google

    TqNW10
    It looks like this was changed in 2022 and now it should be possible to hit the maximum contribution: https://avieradvisors.com/blog/how-does-the-amazon-mega-backdoor-roth-conversion-work/ (link to embedded video: https://youtu.be/Dk35abhjWDM)
    Feb 2 1
    • Amazon
      D22_Htew68

      Go to company page Amazon

      D22_Htew68
      OP
      Yes. I'm using it right away and now contributing 50% of my base salary to the after-tax 401k. I want it to grow fast so when I leave Amazon, I would have a nice bag for Self_directed IRA
      Feb 3