German tax perspective · U.S. pension plan
401(k) with German tax residence
If you own a U.S. 401(k) and move to Germany, the plan should not simply be treated as an ordinary investment account for German tax purposes. The Germany–U.S. tax treaty generally protects tax deferral inside qualifying U.S. pension plans. Once distributions are made, however, German taxation under Section 22 No. 5 of the German Income Tax Act becomes relevant. A major change in German law applies from 2025.
German classification
A 401(k) is generally treated as a foreign occupational pension arrangement in Germany
For German tax purposes, a U.S. 401(k) is not simply an offshore securities account. German Federal Fiscal Court case law classifies payments from a 401(k) under the rules for other income pursuant to Section 22 No. 5 of the German Income Tax Act.
This treatment is based in particular on the structural comparability of a 401(k) with German forms of funded occupational pension provision. The Germany–U.S. tax treaty and its protocol also support this classification.
Article 18A Germany–U.S. tax treaty
Income accruing inside the 401(k) is generally deferred for German tax purposes until distribution
Article 18A(1) of the Germany–U.S. tax treaty contains a special rule for cross-border pension plans. If a person resident in Germany participates in a qualifying pension plan established in the United States, Germany generally may not tax income earned inside the plan until that income is distributed to the participant.
A move to Germany therefore does not generally result in annual German taxation of interest, dividends or capital appreciation occurring inside a qualifying 401(k).
- identify the 401(k) as a U.S. pension plan
- determine German treaty residence
- apply Article 18A
- generally no annual German taxation of plan earnings
- taxation generally deferred until distribution
- classify distributions under German tax law
Contributions after moving
Continuing contributions to a U.S. 401(k) while working in Germany requires a separate analysis
Article 18A also contains rules governing cross-border contributions to qualifying pension plans. Under certain conditions, contributions to an existing U.S. pension plan may continue to receive tax recognition while an individual temporarily works in Germany.
The requirements are significantly narrower than the general tax-deferral rule applicable to income accruing within the plan. The particular plan, prior participation, employment relationship and treaty time limits must therefore be reviewed.
Distributions while resident in Germany
A 401(k) distribution generally creates German taxable income
If a distribution is received while the taxpayer is subject to unlimited German income taxation and is resident in Germany for treaty purposes, the payment must generally be classified under Section 22 No. 5 of the German Income Tax Act.
This may apply both to periodic pension payments and to lump-sum distributions. The German tax treatment depends in particular on the contributions underlying the payment and the tax treatment of those contributions during the accumulation phase.
Lump-sum distribution
A full or partial lump-sum payment from a 401(k) can also fall within Section 22 No. 5 of the German Income Tax Act.
Periodic distributions
Regular pension distributions must likewise be classified under the German rules for payments from pension arrangements.
Contribution history
The German taxable amount may depend heavily on when contributions were made and whether they benefited from tax relief.
EUR conversion
U.S.-dollar distributions and, where relevant, historical contributions must be translated into euro for German tax purposes.
Change in German law
From 2025, Germany expressly takes foreign tax relief during the contribution phase into account
A major change to Section 22 No. 5 of the German Income Tax Act applies from the 2025 tax year. The provision now expressly includes contributions to foreign pension arrangements where Germany or another country granted tax exemption or comparable tax relief for those contributions.
As a result, traditional tax-advantaged 401(k) contributions may now lead to full downstream taxation of the corresponding pension benefits under Section 22 No. 5 sentence 1.
German Federal Fiscal Court
For distributions through 2024, the German taxable amount could be substantially lower
The German Federal Fiscal Court held in 2020 that payments from a U.S. 401(k) generally fall within Section 22 No. 5 of the German Income Tax Act. Under the law then in force, however, U.S. contributions made while the taxpayer was outside the German tax system were not automatically treated like contributions benefiting from German tax incentives.
The court confirmed again in 2025, for distributions made before January 1, 2025, that a 401(k) could fall within Section 22 No. 5 sentence 2 because of its structural comparability with German occupational pension arrangements. Depending on the facts, German taxation could therefore be limited to the relevant investment gain or difference amount rather than the entire distribution.
Germany–U.S. tax treaty
The treaty and German domestic tax law must be analyzed separately
Two separate levels must be considered for 401(k) distributions. The tax treaty first determines which country is entitled to tax the pension. German domestic tax law then determines how the payment is taxed in Germany.
Article 18 of the Germany–U.S. tax treaty generally assigns pensions and similar remuneration relating to past employment to the country in which the recipient is resident. If the recipient is treaty-resident in Germany, Germany therefore generally has the right to tax the distribution.
Article 18
Generally governs the allocation of taxing rights for pensions and similar remuneration from past employment.
Article 18A
Contains special rules for qualifying pension plans, including the accumulation phase and cross-border contributions.
Section 22 No. 5 EStG
Determines the German tax treatment and taxable amount of pension-plan distributions.
U.S. person status
For U.S. citizens and certain other U.S. persons, the treaty's Saving Clause must also be considered.
Moving to Germany
Document your 401(k) history before moving to Germany
Individuals who accumulated a 401(k) while working in the United States and later move to Germany should preserve plan and contribution records before the move whenever possible.
Where there are older plans, several employers, rollovers or mixed contribution types, it can become difficult years later to determine which amounts represent employee contributions, employer contributions, tax-advantaged amounts or amounts that were already taxed.
Traditional and Roth
Traditional 401(k) and Roth 401(k) components should not automatically be treated the same
Traditional 401(k) employee contributions generally benefited from U.S. tax relief during the accumulation phase. That foreign tax relief has become particularly relevant under the German rules applicable from 2025.
Roth contributions follow a different U.S. tax model because they are generally funded with already-taxed income. If a 401(k) contains both Traditional and Roth components, those components should therefore be analyzed separately for German tax purposes.
U.S. tax perspective
The U.S. treatment of 401(k) plans is covered separately on taxrep.us
On the U.S. side, relevant issues include distribution rules, potential U.S. withholding and the continuing U.S. tax obligations of U.S. citizens.
For U.S. citizens, the treaty's Saving Clause may mean that a U.S. tax calculation continues to be required even where Germany has the primary taxing right. Any resulting double taxation must then be coordinated on the U.S. side.
- 401(k) distributions
- U.S. withholding
- U.S. citizens abroad
- Saving Clause
- Foreign Tax Credit
- rollover questions
Common mistakes
Common mistakes with a 401(k) after moving to Germany
Treating the 401(k) as a brokerage account
Because of the treaty's special pension-plan rule, income accruing inside a qualifying plan is generally not taxed in Germany in the same way as income from a private investment account.
Applying old case law to 2025
German law changed for the 2025 tax year. Earlier court decisions should therefore not be applied automatically to current distributions.
Taxing the full distribution without analysis
The year of distribution, type of contribution and tax relief received during the accumulation period should first be established.
Mixing Traditional and Roth amounts
Roth contributions funded from already-taxed income may require a different German analysis from tax-advantaged Traditional 401(k) contributions.
Failing to preserve contribution records
Without historical documentation, determining the correct German taxable amount later can become significantly more difficult.
Ignoring the Saving Clause
For U.S. citizens, the U.S. tax analysis does not necessarily end merely because Article 18 assigns the primary taxing right to Germany.
Related guidance
Related topics
Frequently asked questions
401(k) with German tax residence
Is a U.S. 401(k) taxable in Germany?
Does Germany tax dividends and gains inside my 401(k) every year?
Is the entire 401(k) distribution taxable in Germany?
What changed on January 1, 2025?
What applies to a distribution made before 2025?
Is a Roth 401(k) treated the same as a Traditional 401(k) in Germany?
Can I continue contributing to my U.S. 401(k) after moving to Germany?
What should I review before taking a large 401(k) distribution?
Germany–U.S. tax advice
Do you have a U.S. 401(k) and now live in Germany?
We analyze your 401(k) under German tax law and the Germany–U.S. tax treaty, including the accumulation phase, contribution history, Traditional and Roth components and the German taxation of planned or completed distributions, and coordinate the German treatment with the U.S. tax side.
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