Taxation of U.S. 401(k) Plans and IRAs in Germany: Regulations for U.S. Citizens
For U.S. expats moving to Germany, the tax treatment of their retirement accounts is an important issue. In particular, 401(k) plans and IRAs (Individual Retirement Arrangements) raise complex tax issues, and German taxation has fundamentally changed in 2025.
The full taxation of payouts from traditional U.S. pension plans in Germany will lead to a significant change in the tax burden for those affected.
Types of U.S. pension plans & how they work
1. Traditional 401(k)/IRA
- How it works: Contributions are made pre-tax, i.e. from gross wages, so growth is tax-deferred. For payouts (from age 59.5), contributions and earnings are subject to U.S. income tax. Withdrawals before the age of 59.5 are subject to an additional 10 percent penalty tax.
- Advantage: The major advantage is the immediate tax savings in the USA by reducing taxable income. You can save 100 percent of the money you earn for retirement and thus have greater leverage over the entire term to increase your assets or pension entitlement.
2. Roth 401(k)/IRA
- How it works: Contributions are made after tax, i.e. from the lower net salary. Earnings and payouts are tax-free in the USA, provided certain rules are observed.
- Advantage: No taxation in the payout phase (e.g. ideal if a higher tax rate is expected in retirement).
401 taxation in Germany before 2025
Until the end of 2024, the following rules applied to U.S. pension plans in Germany:
- Traditional 401(k)/IRA: Only the income portion (difference between payout and contributions) was taxed in Germany, provided the taxpayer was not subject to tax in Germany during the savings phase, e.g. only lived and worked in the USA (see BFH of October 28, 2020, X R 29/18).
- Roth plans: As the contributions to the Roth plan have already been made from taxed money, only the difference between the amount paid out and the already taxed contributions/payments is subject to German taxation in the event of a later payout.
New legal situation in Germany since 2025: Section 22 no. 5 EStG (JStG 2024)
The Annual Tax Act 2024 (Jahressteuergesetz 2024) reformed the taxation of foreign pension plans, particularly with regard to Traditional 401k/IRAs:
- From 2025, the entire payouts (deposits + earnings) of Traditional 401(k)/IRAs will be taxed in Germany if the contributions were tax-privileged abroad. This also applies to earlier tax-neutral rollovers. The partial exemption of payouts therefore no longer applies.
- However, the taxation of Roth plans will not change. The difference between the payout and the contributions made will continue to be taxed, as the contributions have already been taxed.
With the new regulations from 2025, the previous tax benefits for traditional 401(k) plans will disappear. U.S. citizens in Germany must now factor in the full taxation of their retirement provision - early planning is crucial to avoid tax traps.
Special features in the double taxation agreement between the USA and Germany (e.g. with regard to rollover, the U.S. savings clause or with regard to U.S. citizens who are still active employees) also complicate the issue.
Your tax advisor for 401(k) plans in Germany
We are happy to advise you on tax issues relating to pension plans and the associated tax risks of (double) taxation or ways of reducing your tax burden. Please feel free to contact us with your questions at info@winheller.com!
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