US retirement accounts in Germany – most tax-relevant aspects

Mostly all of our clients have been saving towards a US retirement plan of some kind (403b, IRA TSP, 401k, Roth versions…) over the course of their career. When they retire to Germany naturally the question presents itself how the benefits from these plans are being taxed.

While the plans vary greatly in terms of eligibility, contribution limits, withdrawal possibilities… they are mostly identical for German tax purposes. If you want to make your life, the taxpert’s life and your filing experience on the German side easier here is what you need to know:

1. US retirement plans let you grow tax-deferred under German tax law as well. Any income you have under its umbrella does not have a tax consequence under German law. Tax consequences arise only from actual distributions.
2. TSPs need to be considered government retirement and can only be considered for German tax rate purposes. We have elaborated as to this in other articles before and ask you check out those as well. However, taxability for tax rate purposes is an issue which has been elevated to direct IRS-Germany treasury considerations so you might get some pushback here which we are happy to take on for you.
3. All other retirement plan distributions are taxable in Germany as per Art. 18A of the tax treaty.
4. A rollover from one plan into another does not count as taxable distribution, albeit we question if it makes sense to transfer a TSP into a normal plan since the taxation rights change with it as well.
5. Regardless of consideration for German tax rate purposes or German tax base, the following aspects need to be considered:
   1. When have you started the plan?
   2. When have you first started drawing from it?
   3. Are your receiving more or less regular payments or are you cashing out in one go?
   4. What were your and your employer’s lifetime contributions towards the plans?
   5. What were your and your employer’s lifetime contributions towards the plans?
   6. Have there been any rollovers? If so, when and what were the plans?
6. Please research your retirement plans history thoroughly and provide clean documentation. You will receive credit for all of your unused contributions. Not being able to potentially show tens of thousands of dollars in unused contributions will obviously have a massive tax effect regardless whether your benefits are considered only for German tax rate purposes and definitely when they make for a German tax base.

Given the above, we think the taxation of US retirement plans under German law can be a straight-forward aspect to take care of and clean documentation will go a long way for you. However, we are always happy to support you in this and find manageable solutions with a German tax office if there are any uncertainties.