Living in Germany with US Retirement Accounts, 401K, IRA, Roth

89 posts in this topic

Thank you. I believe @PandaMunich already commented, and felt that I would not be eligible for this deduction, as this was intended for people temporarily living in Germany, and then going back, to not interrupt their retirement saving, not for people like me who have moved here for a longer time. I'm choosing, likely foolishly, to ignore her advice on this one point.

 

So, at least for German retirement accounts, for the married filing jointly contribution, do you happen to know if half of that needs to go into an account in each person's name? Or a joint account? Or does the name on the account not matter? Since I would be putting this money into a SEP IRA in the US, it's only in my name. The more usual traditional IRA accounts in the US are capped at $5500 per person.

 

Thank you.

 

 

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@StephenGermany

 

I do not know if your contemplated contributions to an SEP under the circumstances you describe, i.e. SEP created post-arrival in Germany by recharacterization of an IRA/401(k) created pre-arrival - will be deductible in any amount.  The only place to obtain competent, unqualifiedly accurate advice on this topic will be your local Finanzamt.

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Thanks. I'm going to assume I'm OK, based on what I am reading in the law. Worst case, I have to take the money back out of the account in 2018, and refile my US taxes. My argument will be that I can either put the money in my US retirement account, or I can put it in a German account, and still not pay taxes on most of it. For a Basisrente (Rürup) you can put 23362€ in 2017 if single, and 46724€ if married in that account, with 84% being tax free, increasing 2%/year. I will only expect 84% of what I put in the US account to be tax free in Germany as well. Yes, there are differences between the plans, but they are "similar". So if they don't allow it, all they are really doing is pushing me to use a German account instead of a US account, without a great benefit to Germany for doing so. The withdrawals in the future are still taxable where I live at the time, one way or the other.

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So, some things that @PandaMunich has said elsewhere make me question the 46724€ above... because of § 3 Nr. 63 Abs. 1 EStG...

which would then only be 3048€ per year for 2017...

 

https://www.longial.de/service/rechengroessen/grenze-fuer-entgeltumwandlung-nach-3-nr-63-abs-1-estg/

 

Big difference... and that section of the income tax law (clause 63) is referred to in an update of the US/German taxation treaty...

 

"The Federal Republic of Germany shall provide the corresponding relief under section 3 No. 63 of the Income Tax Act; "

 

The end result is pretty unfair in my opinion. If I contribute to a German Basis-Rente plan, I can contribute 46724€. And I think if I'm a German living in the US, I can keep contributing at that level. But for an American in Germany, we are limited by clause 63? 

 

Any comments on this anyone? Thanks.

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That would have been in this thread about employees:

 

§3 Nr. 3 EStG is about contributions the employer makes, not the employee:

"Steuerfrei sind

...

Beiträge des Arbeitgebers aus dem ersten Dienstverhältnis an einen Pensionsfonds, eine Pensionskasse oder für eine Direktversicherung zum Aufbau einer kapitalgedeckten betrieblichen Altersversorgung, bei der eine Auszahlung der zugesagten Alters-, Invaliditäts- oder Hinterbliebenenversorgungsleistungen in Form einer Rente oder eines Auszahlungsplans (§ 1 Absatz 1 Satz 1 Nummer 4 des Altersvorsorgeverträge-Zertifizierungsgesetzes vom 26. Juni 2001 (BGBl. I S. 1310, 1322), das zuletzt durch Artikel 7 des Gesetzes vom 5. Juli 2004 (BGBl. I S. 1427) geändert worden ist, in der jeweils geltenden Fassung) vorgesehen ist, soweit die Beiträge im Kalenderjahr 4 Prozent der Beitragsbemessungsgrenze in der allgemeinen Rentenversicherung nicht übersteigen. 2Dies gilt nicht, soweit der Arbeitnehmer nach § 1a Absatz 3 des Betriebsrentengesetzes verlangt hat, dass die Voraussetzungen für eine Förderung nach § 10a oder Abschnitt XI erfüllt werden. 3Der Höchstbetrag nach Satz 1 erhöht sich um 1 800 Euro, wenn die Beiträge im Sinne des Satzes 1 auf Grund einer Versorgungszusage geleistet werden, die nach dem 31. Dezember 2004 erteilt wurde. 4Aus Anlass der Beendigung des Dienstverhältnisses geleistete Beiträge im Sinne des Satzes 1 sind steuerfrei, soweit sie 1 800 Euro vervielfältigt mit der Anzahl der Kalenderjahre, in denen das Dienstverhältnis des Arbeitnehmers zu dem Arbeitgeber bestanden hat, nicht übersteigen; der vervielfältigte Betrag vermindert sich um die nach den Sätzen 1 und 3 steuerfreien Beiträge, die der Arbeitgeber in dem Kalenderjahr, in dem das Dienstverhältnis beendet wird, und in den sechs vorangegangenen Kalenderjahren erbracht hat; Kalenderjahre vor 2005 sind dabei jeweils nicht zu berücksichtigen;"

 

Though usually there's a deal made: we, the employer, will pay those 4% of the Rentenversicherung-Bemessungsgrenze (+ 1.800€ if the employee doesn't have an old plan from 2004 or before), if you, the employee, will in turn accept that your gross salary is lowered by that amount.

 

Of course, there are also generous employers who don't resort to this deal and simply pay those 4% on top of the normal, unreduced gross salary.

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Thank you! Great point!!

 

So, I know your reading of the rationale for Article 18A is for secondment. If I were seconded (I'm feeling British just typing that) to Germany, then you

think the limit I could personally contribute to a US IRA would be the amount a German can contribute to a Basisrente (46724 in 2017)? If so, then

the reason you think I cannot do this, is that I am not seconded... but do you think there is anything in the text of the actual treaty disallowing this? The

rationale behind the authors of the US second amendment wasn't to let people own M16's, but they can... =)

 

I think I've posted this doc before, but the Finanzamt person I spoke with cited it when telling me I could deduct contributions...

 

http://datenbank.nwb.de/Dokument/Anzeigen/449077/

 

From my so-so German reading of it, it says I can do it. But it very much focuses on  § 3 Nr. 63  when describing the maximum you can contribute...

 

Thanks!

 

 

 

 

 

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Sorry, but that document says that contributions are only tax-free up to the amounts mentioned in §3 Nr. 63 (edited, thanks) EStG, i.e. in 2017 those 3,048€ + 1,800€.

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Nr. 3 -> 63?

 

Thank you.

 

I suppose that's per person if married...still not that much if, as in America, people think they need millions to retire... I know you are a big fan

of the solvency of social security. ;-)

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Another comment on this topic. So we are saying, that although one of the main ideas behind Article 18A was to allow Americans seconded to Germany to continue paying into their retirement accounts... that if an American is maxing out their 401K contributions (the most common way for workers to save for retirement in the US), which is $18K/year, that they could find out after the fact that they owe taxes to Germany on 2/3 of those contributions? Doesn't seem like 18A achieves a main goal for which it was intended.

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@Straightpoop

@PandaMunich

 

Just to wrap this up... going by the 3048+1800=4848€ as the amount that can be deducted from taxable income each year due to a qualified US IRA contribution... where on a Steuererklarung would I list this? Box 101? And can I make this contribution for both myself and my wife? My wife works, so do her payments to Rentenversicherung eat away at the amount she could deduct? Thank you!

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You don't list it anywhere, it's programmed into the Finanzamt's software.

 

You simply stick the amount you contributed to that US pension plan somewhere into Anlage Vorsorgeaufwand, e.g. into line 4 (which is wrong, but there is no specific space for your non-standard case), and provide proof of how much you contributed to the US pension plan, and a lot of documentation telling the clerk at the Finanzamt how exactly he/she has to deal with this (because yours will be the first such case he/she will have ever come across...).

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Hello! I’ve searched the forums and the interwebs to try and find an answer about taxation of a 401K lump-sum withdrawal, but haven’t found anything definitive. Or maybe I just haven’t understood what I was reading. ;)

 

I’m a US Citizen living & working in Germany for nearly 10 years. I have 2 old 401K accounts in the US that I haven’t contributed to since about 2004. I’m considering taking a lump-sum payout from one of them to use as a down payment on a house here.

 

While I understand that since I’m under 59.5, I will have to pay a 10% penalty to the US for withdrawing before retirement age, I’m unclear on how the rest would be taxed.

 

Would this be taxed as income in Germany and subject to the dual-taxation laws? Or would I still have to pay the approximately 25% tax in the US and also pay tax in Germany?

 

Thanks for any clarification anyone could provide to these very muddy waters!

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Hi @ansi

 

I am not a tax expert.

 

401K accounts hold pretax money... both principal and gains. Both are taxable in the US when you take them out of the account, as you know.

Then as you said, there's the 10% extra hit, since you're too young.

 

Since you are tax resident in Germany, yes, Germany considers this income. So it is taxed here. And yes, you should be able to take a tax

credit on form 1116 of your US tax return based on how much Germany taxed you. And assuming the taxes that Germany made you pay

are more than what the US would have had you pay, I have no idea whether you can use the extra to cover the 10% penalty... but I doubt it.

 

Good luck.

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Thanks so much for the quick reply @StephenGermany! It is not as bad as I assumed it would be! :D

 

Since my income in 2018 is going to be quite low, and in 2019 not as low, I guess it would behoove me to do it before the end of the year. If I go through with this, will report back here with the actual results in a few months.

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Hello! It's been a while since this thread was updated but the info seems pertinent. (Hope @StephenGermany was able to figure everything out :)

I have a question that has to do with the discussion: I am a German and have an IRA from the US that I need to roll over into an IRA or Roth IRA in Germany. However, the closest thing to an IRA I could find were Rentenfonds/Kapitalmarktfons in Germany. 

The problem is that if I choose to withdraw the money before age 59.5 then I will lose 20% of it (which is sizeable) to fed tax in the US. So, I need to find a fon that is equivalent to the IRA in Germany. Are there any?

 

And in case there aren't and I will have to withdraw the funds, would I be double taxed (which I believe I wouldn't but I rather double check)?

 

Leaving the funds in the current IRA or the US domicile is not an option.

 

Thank you very much!

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20 minutes ago, SnowedIn said:

I am a German and have an IRA from the US that I need to roll over into an IRA or Roth IRA in Germany. However, the closest thing to an IRA I could find were Rentenfonds/Kapitalmarktfons in Germany. 

The problem is that if I choose to withdraw the money before age 59.5 then I will lose 20% of it (which is sizeable) to fed tax in the US. So, I need to find a fon that is equivalent to the IRA in Germany. Are there any?

 

And in case there aren't and I will have to withdraw the funds, would I be double taxed (which I believe I wouldn't but I rather double check)?

 

Leaving the funds in the current IRA or the US domicile is not an option.

 

I'm glad I don't personally have that problem - and haven't had a need to educate myself on the subject matter....

 

but a little bit of googleing brought up this company, that sounds like they may be able to advize you here:

https://crossborderwealth.godaddysites.com/what-we-do

 

I have no experience with them, don't get any commission from them - so do your own research.

 

Good luck!

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1 hour ago, SnowedIn said:

I am a German and have an IRA from the US that I need to roll over into an IRA or Roth IRA in Germany. However, the closest thing to an IRA I could find were Rentenfonds/Kapitalmarktfons in Germany. 

The problem is that if I choose to withdraw the money before age 59.5 then I will lose 20% of it (which is sizeable) to fed tax in the US. So, I need to find a fon that is equivalent to the IRA in Germany. Are there any?

 

You cannot roll over your IRA or Roth IRA to a German IRA because that it is simply impossible.  There is no such thing as a German IRA - Roth or otherwise.  I suppose it is theoretically possible that an individual or corporate IRA custodian could be domiciled in Germany but I cannot conceive of the possibility that there would be a German financial institution capable or willing to maintain an IRA account for such a custodian.

 

If you take a premature distribution from your IRA you are subject to a US excise tax of 10% - not 20%.  The distribution will be otherwise US (income) tax-free because the Germany-US tax treaty gives Germany the exclusive right to impose an income tax on it.  The 30% withholding tax can also be avoided by first submitting a Form W-8BEN to the IRA trustee.  If properly respected a Form W-8BEN will eliminate the need to file an nonresident alien return (1040-NR) to obtain a refund of any income tax withheld. (That will not apply to the 10% early withdrawal penalty.)

 

As noted, you will have to declare the distribution and be taxed on it in Germany.  How much of the distribution will be taxable in Germany will depend upon when and under what circumstances you contributed to the IRA.  Germany's system for taxing US IRA (or 401k) distributions is mathematically similar to the US method applied when a US taxpayer has made non-deductible contributions to the IRA.  So, if at the time you made your contributions you were ineligible to claim any reduction in your current German taxable income (most likely because you were a German tax non-resident when you made the contributions), then a portion of whatever is distributed to you will be deemed a non-taxable return to you of your cost basis in the IRA.

 

See this Merkblatt from the OFD Karlsruhe:

 

https://datenbank.nwb.de/Dokument/Anzeigen/449077/

 

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