Amazon RSUs: What to Do When They Vest
Amazon RSUs vest on a backloaded schedule that catches most employees off guard. Here's what to actually do when they vest, and how to avoid the tax surprise.
Written by
Alex McDonald, CFP®
If you work at Amazon, your compensation likely includes restricted stock units, and by now you know the basics: RSU's vest, some taxes are withheld, and you receive a portion of the vested shares deposited into your account.
What's harder to find is guidance for the moments that actually matter: what to do on the day shares vest, whether to hold the shares or sell to cash, what happens if you leave before a vest date, and whether Amazon's cash election is worth taking. Here's how to think through each one.
When your shares vest, Amazon withholds a portion through sell-to-cover, selling enough shares to cover the tax bill and depositing the rest into your account as stock you now own outright. By default, Amazon sets this tax withholding rate at 22%. However, if you are in a higher marginal tax bracket, you can manually adjust this withholding percentage upward to avoid under-withholding and potential tax penalties come April. Once that tax piece is handled, the real decision starts: hold the remaining shares or sell them.
The question is, do you treat these newly vested shares as a stock you'd choose to buy today, at today's price, with today's savings. If you wouldn't put fresh cash into Amazon stock right now, that's a signal worth taking seriously rather than letting inertia make the decision for you.
Frame this as a concentration question, not an emotional one. Every vest adds to a position you likely already hold in your 401(k), your ESPP, and possibly prior grants. Further, you have exposure to Amazon’s performance in relation to your employment. The question isn't whether Amazon is a good company. It's whether your net worth growth should rely primarily on one employer's stock price.
For most people, the more reliable approach is to sell RSUs as they vest and reinvest the proceeds into a diversified portfolio. Holding makes sense only under specific conditions: you've already built meaningful diversification elsewhere, you have a documented reason to expect outsized performance, or you're managing the sale around a specific tax or cash-flow need.
RSUs are taxed as ordinary income at the moment they vest, based on the value of the shares that day. If you sell immediately, there's typically little to no additional capital gain to worry about, since your cost basis resets to that vesting-day price. Hold the shares and sell later, and any additional gain or loss on top of that basis is a separate capital gains event, one you're now taking on voluntarily. In this light, consider if you received a cash bonus: would you spend it, save it, reinvest it, or use the bonus to buy Amazon stock?
The default answer holds because concentration risk compounds quietly. A single stock position that feels manageable at $50,000 can feel very different at $500,000, and by the time it's uncomfortable, the tax cost of unwinding it can be substantial. Selling systematically, on a schedule rather than a feeling, is what keeps that from becoming a five-year problem you didn't plan for.
Unvested RSUs are forfeited if you leave before the vest date, without exception. There's no partial credit for time served between vest dates, so the shares simply don't convert.
This is why timing a resignation around a vest date is a legitimate and common consideration, not something to feel sheepish about. If you're weighing a departure, a job offer, or a career change, checking your vesting calendar first is a practical step, and holding out a few weeks or months for a scheduled vest can be worth real money depending on where you sit in your grant.
Amazon's initial four-year RSU grants vest on a backloaded 5-15-40-40 schedule: 5% at the end of year one, 15% at the end of year two, 40% in year three (typically split in two 20% vests), and 40% in year four (typically split in two 20% vests). Refresher grants, awarded periodically to extend your equity runway, don't automatically follow that same curve, which means your total vesting value can drop after year four even if your performance and level haven't changed.
Amazon builds future compensation targets around a 15% annual stock price growth assumption when sizing refresher grants. That's a separate number from the RSU-to-cash split percentage covered below, and the two get confused often enough that it's worth stating plainly: one is a growth assumption used for grant sizing, the other is an election mechanic for how a future tranche gets paid out.
The planning implication matters more than the mechanics. A meaningful income drop in year five is predictable if you see the backloaded schedule coming, and predictable problems are solvable with a plan. A drop that arrives as a surprise is a much harder one to absorb, especially if your spending has already adjusted to the peak vesting years.
Eligible employees can elect to receive 25% of a future vesting tranche as cash instead of stock, with the remaining 75% vesting normally as shares. The cash portion locks to a fixed planning price set at the time of election, typically 12 to 21 months before the shares actually vest, and pays out on the same quarterly cadence as the stock, not as a lump sum upfront.
The tradeoff is straightforward once you see it: locking in a planning price protects you against a stock decline between now and the vest date, but it also caps your upside if the stock outperforms that price. Neither outcome is inherently better. It depends on how much concentration risk you're already carrying and how much certainty you'd rather have in exchange for potential upside.
One note on numbers: the specific planning price and enrollment window reset with every election cycle, and figures you see quoted online, including on other advisory sites, may be stale or specific to a prior cycle. If you're weighing this election, confirm the current figure through your own account or a consultation with a CFP® professional rather than relying on a number you saw last year. You can also run your own numbers on our RSU Tax Calculator to see how different vesting values shift your withholding gap.
There's no single percentage that's right for everyone, but here is a solid starting point: First, consider your Amazon exposure by adding up total Amazon stock owned: vested shares (from RSU’s and ESPP., 401(k) allocation, and Amazon exposure in ETF’s owned (Amazon makes up about 4% in S&P 500 funds). Next, consider exposure through unvested RSU’s and/or ESPP schedule. Then divide the value by your total investable net worth to find your stock concentration. This typically should not exceed 10%, and considered high risk above 20%.
The challenge is that selling a large concentrated position all at once can trigger a substantial capital gains bill in a single year. This is where tax-loss harvesting and direct indexing become useful tools rather than jargon: harvesting losses elsewhere in your portfolio can offset gains from unwinding Amazon stock, and direct indexing can rebuild diversified market exposure gradually while managing the tax impact along the way. Neither eliminates the tax bill, but both can spread it out and reduce it.
It's also worth understanding who's managing that decision today. If your RSU account sits inside a brokerage that also charges a percentage-based advisory fee on your total assets, there's a structural incentive to keep those assets invested and growing under that fee rather than to actively help you diversify out of a concentrated position, since diversifying out could mean fewer assets under that fee over time. Domain Money charges a flat fee with 0% assets under management, works as a fiduciary, and doesn't earn a commission on trades, so there's no structural incentive pulling against the advice that's actually right for your situation.
RSUs can be taxed at rates up to 44.65%, yet most employees only expect the 22% default sell-to-cover withholding rate, which is where the tax surprise comes from. For income over $1 million in a year, the default withholding rate rises to around 37%, still potentially short of your actual marginal rate once RSU income stacks on top of your salary and other earnings.
That gap between what's withheld and what's actually owed is the single most common tax surprise for Amazon employees, and it tends to show up at the worst possible time: when you file your return and discover you owe more than expected instead of catching it in advance. Forward tax planning, projecting your total income for the year and adjusting withholding or estimated payments accordingly, turns that April surprise into a number you saw coming months earlier. If your equity comp adds meaningful complexity to your tax picture, our Equity Comp Tax Trap webinar walks through where these gaps show up and what to do about them before they become a problem.
What is an Amazon RSU? An RSU, or restricted stock unit, is a promise from Amazon to give you shares of company stock once you meet a vesting requirement, typically continued employment through a specific date. Unlike a stock option, you don't pay to receive the shares. They convert automatically as they vest.
How does Amazon's RSU vesting schedule work? Initial four-year grants follow a 5-15-40-40 schedule, vesting 5% at the end of year one, 15% at the end of year two, and 40% in each of years three and four (typically split in two 20% vests). Refresher grants layer on top of that schedule over time and don't necessarily follow the same curve.
Do Amazon RSUs count as income before you sell them? Yes. RSUs count as ordinary income the moment they vest, based on the value of the shares that day, regardless of whether you sell them right away or continue holding them.
What's the difference between an RSU and a stock option? An RSU gives you shares outright once vested, with no purchase required. A stock option gives you the right to buy shares at a set price in the future, which means the option only has value if the stock trades above that price when you exercise it.
Can you negotiate your Amazon RSU grant? Base salary, sign-on bonus, and RSU grant size are all generally negotiable at the offer stage. Total compensation tends to stay within a set band for your level, so a higher ask in one area often means a lower figure in another.
What happens to Amazon RSUs if the company is acquired or you're laid off? Outcomes vary by the specific terms of your grant and any severance agreement, so this is worth reviewing with a CFP® professional or your equity plan documents rather than assuming a standard outcome applies.
Book a Free Strategy Session today and talk to our team of experts about your RSUs.
This article is for informational purposes only and does not constitute financial, investment, legal, or tax advice. Tax rates, withholding percentages, and equity plan terms referenced here, including Amazon's RSU-to-cash election, are subject to change and may vary based on your individual circumstances. Consult a CFP® professional before making decisions about your equity compensation.
