Participating in the German Pension System

Benefits provided under the United States – Germany Tax Treaty allow you to take advantage of local pensions and retirement arrangements while living and working in Germany. For the most part, these arrangements will operate much in the same way as they would if you were living in the U.S. and contributing to a 401(K) or IRA. Find out how participation in the Germany Pension System impacts your tax situation.

For 2023, you may be able to deduct up to $66,000 ($73,500 if age 50 or older) of contributions to a qualified German pension plan for U.S. tax purposes. This can overcome the problems that often arise when U.S. taxpayers participate in foreign pension arrangements and end up being double taxed because of the timing of the tax event in each country. As an American expat living in Germany you will have a number of options to save for retirement in a tax efficient way.

Social Security – The benefits provided in the United States – Germany Tax treaty will also provide relief once you begin receiving social security payments. The treaty provides that the distributions are taxed only in your country of residence. This means that if you are still living in Germany when you qualify for social security benefits, you will not pay any U.S. tax. And, if you have moved back to the U.S. for retirement, the treaty also results in your German social security payments being taxed the same way as U.S. social security income – only taxable if your overall income is over a certain amount. Every situation is unique and your H&R Block Expat Tax Advisor can help you figure out whether participating in a German pension plan will provide you with tax savings.