Can Germany tax my US retirement plan?

Americans in general are much more used to investing towards retirement than most Germans are. For this reason, almost every American in Germany has a retirement from previous employment or freelance work – the most commons ones being IRA, 401(k), 403(b), Roth, SEP, TSP…

A US retirement plan is an awesome thing to have. It is likely the only investment product which – at least while you are not drawing from it – works the same under US and German tax law in that whatever is under its umbrella grows tax deferred.

Things get tricky once you start drawing from your plan. First of all, unless you are splitting your time between the US and Germany to where there is plenty of wiggle room to make you a resident (under treaty law) of the US, Germany has the right to tax your retirement plan distributions. The question plain and simple is then, to which extent and how.

At this point a number of questions come in.

  1. It needs to be determined how you obtained your retirement plan and how much you (and maybe your employer) contributed towards it. Since you will receive credit of the lifetime contributions a credible figure as to this is key.


Also, in case you inherited your retirement plan or received it as a gift, there is a chance that you will not receive (full) credit for those contributions. There is not enough binding guidance out there whether a third party’s contributions can also be gifted/inherited.


  1. The nature of your retirement plan is also essential. A TSP retirement plan is funded by the government, which means that it should actually be tax-exempt in Germany. Currently this is a disputed subject between the German Treasury and the IRS.


  1. The German tax consequences also hinge on when you had entered into the retirement plan and for how long you had it (12 years is currently the threshold) and how old you are when you start drawing – 60 years is usually the critical age. Depending on the circumstance only a very small fraction of your distribution may be subject to any German tax consideration.


You can see that there are quite a few factors to consider when drawing from a retirement plan. Those factors also need to be considered when planning for retirement (in Germany). For this reason we always advise that somebody who has income from a US retirement plan, or is considering retirement in Germany, collects as many information as possible on the above and then seeks professional guidance. You worked too hard to build your plan to easily give your money to the tax man.

Please reach out to us if you think this topic affects you, if you have questions or specific consulting advice on this issue.

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