U.S. retirement plan · German taxation
401(k) distribution in Germany
If you built up retirement savings in a U.S. 401(k) and later live in Germany, distributions must be analyzed under German tax law. The year of distribution, the historical tax treatment of contributions and the important change to Section 22 No. 5 EStG effective from 2025 can materially affect the German taxable amount.
German tax law
A 401(k) is generally treated as a foreign occupational pension arrangement in Germany
The German Federal Fiscal Court has confirmed that a U.S. 401(k) plan is structurally comparable to certain externally funded forms of German occupational pension provision. Distributions therefore generally fall within the framework of Section 22 No. 5 EStG. :contentReference[oaicite:0]{index=0}
The Germany–U.S. tax treaty also recognizes qualifying U.S. plans under Section 401(a) IRC, including typical 401(k) arrangements, as pension plans. During the accumulation phase, Article 18A generally protects income accruing inside the plan from current German taxation at participant level. The distribution itself is a separate tax event.
Change from 2025
Foreign tax relief for contributions can now lead to full downstream taxation
Section 22 No. 5 EStG was amended with effect from the 2025 tax year. The statute now expressly takes into account contributions to a foreign pension institution where comparable tax exemption or tax relief was granted either in Germany or in another country.
This is particularly relevant for Traditional 401(k) contributions. Where contributions received U.S. tax relief, the resulting distribution can generally fall within full downstream taxation under Section 22 No. 5 sentence 1 EStG to the extent attributable to those tax-favored contributions. :contentReference[oaicite:1]{index=1}
- new rule applies from tax year 2025
- foreign contribution tax relief is expressly recognized
- Traditional 401(k) contributions can be affected
- contribution history remains important
- pre-2025 case law cannot simply be applied to later distributions
Practical effect
A distribution from 2025 onward can be taxed much more heavily than under the previous rules
Under the earlier statutory wording, the German Federal Fiscal Court held that U.S. tax relief granted for 401(k) contributions could not simply be treated like German tax-subsidized pension contributions. As a result, only the investment gain or difference amount could be taxable in certain cases.
The statutory amendment from 2025 specifically addresses foreign pension contributions that received comparable tax relief abroad. The favorable treatment developed under the earlier law therefore does not automatically apply to new distributions.
Federal Fiscal Court case law
Distributions made before January 1, 2025 remain subject to the previous rules
In its judgment of June 25, 2025, the German Federal Fiscal Court expressly held that payments from a U.S. 401(k) plan made before January 1, 2025 are taxable under Section 22 No. 5 sentence 2 letter b EStG because Germany recognizes the plan's structural comparability with qualifying German occupational pension arrangements. :contentReference[oaicite:2]{index=2}
For relevant arrangements, this can lead to application of Section 20(1) No. 6 EStG. Depending on the specific facts, the taxable amount may therefore be based on the difference between the distribution and the contributions paid into the arrangement rather than the entire gross distribution.
Distribution through 2024
Foreign tax relief for contributions did not automatically result in full downstream taxation under the previous statutory wording.
Distribution from 2025
The amended statute expressly recognizes comparable foreign tax relief for contributions. :contentReference[oaicite:3]{index=3}
Lump-sum distribution
A one-time 401(k) withdrawal can also fall under Section 22 No. 5 EStG
Section 22 No. 5 EStG is not limited to recurring pension payments. The Federal Fiscal Court has confirmed that one-time capital payments and lump-sum settlements can also constitute benefits within this framework. :contentReference[oaicite:4]{index=4}
The German taxable amount then depends on the contribution components contained in the payment and the tax treatment those contributions received during the accumulation period.
Traditional and Roth
Traditional and Roth components should be documented separately
Traditional 401(k)
Contributions were generally made on a pre-tax basis in the United States. From 2025, this foreign tax benefit is expressly relevant under Section 22 No. 5 EStG.
Roth 401(k)
Contributions are generally made from already-taxed income. The contribution basis must therefore be distinguished from subsequent investment earnings.
Partial distributions
Several smaller withdrawals can have a different tax effect from one large distribution
German income taxation generally follows the year in which the payment is actually received. Spreading distributions across several calendar years can therefore change the income-tax progression effect.
The form of payment — lump sum, periodic withdrawal or annuity — can also be relevant to specific provisions within the German pension-tax regime.
Example
Why the contribution history can determine the German result
An employee built up a Traditional 401(k) while working in the United States. The contributions received U.S. tax relief. Years later, the employee lives in Germany and withdraws the funds.
If the distribution occurs from 2025 onward, the amended Section 22 No. 5 EStG can treat the foreign tax relief granted on the contributions as relevant for downstream taxation. The earlier case law under which only the difference amount could be relevant cannot simply be carried forward to the new statutory regime. :contentReference[oaicite:5]{index=5}
Step 1
Determine the total employee and employer contributions made to the plan.
Step 2
Determine which contributions received U.S. tax relief and which were already taxed.
Step 3
Separate Traditional, Roth and any other after-tax components.
Step 4
Calculate the German taxable amount based on the distribution year and the relevant contribution categories.
Documentation
Historical records are often essential to calculate German tax correctly
A U.S. Form 1099-R provides important information about the distribution, but it does not necessarily contain everything required for German tax purposes. For older 401(k) accounts, reconstructing the contribution history can be one of the most important parts of the analysis.
Plan statements
Annual and historical account statements can document the development of the 401(k) balance.
Employee contributions
Personal contributions should be separated into Traditional, Roth and other after-tax amounts.
Employer contributions
Employer matching contributions and other employer-funded amounts should also be identified.
Form 1099-R
Documents the distribution but does not determine the German taxable amount by itself.
Rollover records
If assets came from another 401(k), 403(b) or similar plan, the original contribution history should be preserved.
Roth records
For Roth components, records distinguishing already-taxed contributions from earnings are particularly important.
Germany–U.S. tax treaty
The treaty protects the accumulation phase but does not by itself determine the German tax base
Article 18A of the Germany–U.S. tax treaty generally protects qualifying U.S. pension plans from current German taxation of income accumulating inside the plan at participant level.
Once a distribution is made, German domestic law — particularly Section 22 No. 5 EStG — must also be applied. The treaty and the German Income Tax Act therefore perform different functions.
U.S. tax side
U.S. withholding and German income tax must be analyzed separately
A 401(k) distribution can also involve U.S. withholding or U.S. income tax. For a recipient resident in Germany, the treaty must then be reviewed to determine which country has the taxing right and whether U.S. tax actually imposed can be credited or otherwise relieved.
The detailed U.S. treatment — including withholding, Forms 1040 or 1040-NR and possible treaty positions — is covered separately on taxrep.us.
Common mistakes
Common mistakes with 401(k) distributions in Germany
Applying old case law to a 2025 distribution
The law changed from 2025 specifically to recognize comparable foreign tax relief for pension contributions. :contentReference[oaicite:6]{index=6}
Copying the Form 1099-R taxable amount
The U.S. taxable amount does not automatically determine the German taxable amount.
Mixing Traditional and Roth components
The historical tax treatment of the contributions differs materially and can produce different German results.
Failing to document contribution basis
Without records of previously taxed contributions, a defensible allocation can become difficult.
Taking the distribution before planning
The tax year of receipt is fixed once the distribution occurs. Significant withdrawals should therefore be reviewed in advance.
Treating a 401(k) like a brokerage account
A qualifying 401(k) is a treaty pension plan and should not be analyzed like an ordinary investment account.
Related guidance
Related topics
Frequently asked questions
401(k) distributions in Germany
Is a 401(k) distribution taxable in Germany?
Is the entire 401(k) distribution taxable from 2025?
What applies to distributions through 2024?
Can a complete lump-sum 401(k) withdrawal be taxable?
Is a Roth 401(k) treated the same as a Traditional 401(k)?
Can spreading distributions over several years reduce German tax?
Which documents should I keep?
Is U.S. withholding automatically credited against German tax?
Germany–U.S. tax advice
Are you planning a 401(k) distribution while living in Germany?
We review the contribution history, Traditional and Roth components, the rules before and from 2025, the German taxable amount and the treaty allocation, and coordinate the German treatment with the U.S. tax side.
Schedule an initial consultation