German equivalents of the 401(k) retirement plan

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I'm moving to Germany in a few months and I'm wondering if there is anything like a 401K or a Roth IRA where you can save a certain percentage of your salary before taxes?

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Though with some of them you have to careful you mean "really permanent". For example the 'Riester-Rente' loses its tax benefit once you cease to reside in Germany, ever, even if you work here for 40 years and then decide to retire abroad. Even for a lot of Germans this is a bit of small-print they are being warned to consider carefully. There are other Rente legal frameworks, probably worth asking a bank for these.

 

Many companies also have pension plans which carry tax benefits, and also the advantage that you contribute directly from pre-tax income, so don't have to wait until your tax declaration the next year to get tax back (unlike a lot of stuff here!)

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Anything offered here is crap. I took a serious look into it a while back (under the assumption that we would be staying long term in Germany even bought a place) And basically any German pensions work like this. Set aside some money each month (in my case 55 euros) and it is put in the bank for the next 25-30 years and when you retire you get a nice tidy pension. NOT 24 years from now I will have the tidy sum of . drum roll please... 19.587 euros (of which 15840 is capital I put in) whoop de do. This was a company pension plan but there are private tax advantaged ones (the name escapes me) which work the same way, put your money in the bank for 25 years and get a small tax break. I've talked to a few people who've had these and the pension payouts are so much as to border on the ridiculous. Don't even waste your time looking at them. We keep getting letters regarding the one my wife signed up for via work wanting our bank account info so we can continue to contribute and I have no interest in putting any capital into it.

 

Secondly if you have a 401K or an RRSP (for Canadians) in theory you are to declare the income each year and pay tax on it, but for all practical purposes if you leave it behind the German goverment won't say anything about it. If your interested in investing there are several ads here on TT (can't vouch for any of them) or if your a DIYer than pick up a copy of Benjamins Grahams book The Intelegent Investor, what Waren Buffet calls the bible of investing.

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24 years from now I will have the tidy sum of . drum roll please... 19.587 euros (of which 15840 is capital I put in)

"Classical" German pension insurance typically works as a so-called "participating plan", i.e. you get a minimum-guaranteed return (which, if I recall correctly, is something like 2.5 or 2.75 % p.a. at the moment), and in addition, if the insurance company earns more investment yield (which it nearly always does), it has to pass at least 90 % of the additional yield on to the policyholder. This means that the actual yield you will get is usually quite a bit higher than the guaranteed minimum.

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what do you recommend for those of us expats who are not sure we want to stay in Germany forever. i want to save more (I only have a Sparfund), but i'm sure I'll return to the US one day. more than likely soon. i just got a notice from my company that i could something like this, also pre-tax, but what happens if i do leave the company (I'll ask them, of course. they are offering workshop soon).

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Elfenstar: as an employee you have a couple of attractive options even if you decide to leave Germany eventually.

1. bAV (betriebliche Altersvorsorge): within this you deduct up to 210.- EUR per month from your gross salary and put that into an investment plan based on funds/shares or the likes giving you really profits over time. Since the money comes out of your gross salary, only a share of it is from your net and the rest is saved taxes, public pension and unemployment fees etc. If you go to another company within Germany, this plan is portable. If you leave Germany you can either cash in or let the money rest in the account until pension time and then decide whether you want a pension or lump-sum payment. Since your employer also benefits from this (because reduction of your gross salary equals a reduction of his on-top costs from your salary) you might even convince the employer to rise your salary at the same time some... After some of these plans who deducted to high costs in the first couple of years in the past (like life insurance and off-shore plans usually do) have been disputed successfully at courts, nowadays plans are available where right from the start your invested money works for you, thus it even makes sense for only a couple of years. The total performance/yield on your invested net pay from add-on gross pay plus profits from the invested funds makes this quite attractive, actually

2. RIESTER plan: don't be dismayed by the current rule that you have to pay back the direct subsidies and tax break money you receive when saving with a RIESTER plan if you ever decide to leave Germany eventually.

First: this rule is under disput at the European court by complaint through the European Commission against Germany and I am pretty sure that this rule will be cashiered before long at least for EU citizen

Secondly: while according to the current rule you have to pay back said subsidies, you are allowed to keep the profits generate with them. Since they subsidies normally amount to 30-40 % of the money you paid in cash, this pushes up any yield your own money generates by 1-2 % points over time since it acts like an interest free loan to you

Thirdly: now the nicest thing is, that if you leave Germany in a couple of year you can claim a deferal of the back-payment until pension time, i.e. you can let the subsidies work for you a couple of years/decades more all the while you do not need to pay interest on it. So in the end the result from compound interest is really neat if then you wold really have to pay back the money at all, which I doubt (see explanation above for dispute at European court).

But here to you need to choose a plan which does not deduct too much costs/fees/commission at the very beginning, but a small number of such plans are available with a good selection of investment funds.

 

The only governement subsidized plan not working for Expats planning to leave Germany eventually and wanting to get the cash instead of a pension are RÜRUP plans because they do not allow anything but receiving a pension starting at the earliest from age 60 til the rest of your life, even though they are quite attractive too from a tax-saving point of view.

 

What you definetly should avoid are any life insurance pension plans like most Germans have due to the low yield and high costs.

 

Happy to provide more information if required,

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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Going to refresh this old, old topic because I've been doing a bit of research on this theme lately, and it's making me angry.  I so very much wish that there was an RRSP equivalent here, but there just isn't.

 

As a self-employed person you have a bunch of crap options.  Please correct me if I'm mistaken or have missed something.  Maybe someone out there has some different 

 

  • Privatrentenversicherung - pension through a private insurer.  They offer you a minimum payout per month or lump sum, is tax deductible.  I've read the fine-print, it is difficult to transfer benefits or capital in the case of death, and guaranteed returns are very, very low, less than 1%.  You need to trust the insurance company (and - HA!) that they will honour a greater return according to the investments made.  Restrictive, fishy, lots of fine print favouring the insurance company and not you, the investor.
  • Riesterrenten - available for self-employed, and tax deductible to a point, but not eligible for the attractive Staatzuschusse available to employees.  In my case if I were an employee, those would amount to 1650 € a year, making this a must-do.  Again, restrictive, non-transferable, capital non-inheritable.
  • Rüruprenten - available for self-employed, also tax deductible.  Not inheritable, can never be paid out, must trust in the investments of whatever company you sign on with.  Like everything in Germany - very restrictive.  
  • Voluntarily paying into the Staatliche RV - nobody with any sense would do this - guaranteed negative returns due to the nature of the state pension system (pension contributions are immediately paid out to recipients, not invested) and the demographic trends of Germany (old and getting older fast), and once signed in impossible to cancel again.   
  • Investing on your own terms - buying stocks and bonds according to your capacity to save.  Comes out of after-tax income, is taxed as it grows, and when you sell it too.  But, it's yours to control and leave behind.  This is what RRSPs in Canada are, except that they're tax-deductible.  This is what I do here, because it is the only sensible option to me, despite the multiple tax drawbacks.

It seriously annoys me that this should be so difficult.  I've been here for 10 years and I really should be used to the complicated nature of everything here, but it still surprises me.

 

 

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