Germany–U.S. tax treaty · Pension plans
Pension plans under Article 18A of the Germany–U.S. tax treaty
Subject to its conditions, Article 18A protects tax deferral for income earned within cross-border pension plans. It also provides contribution relief and certain benefits for U.S. citizens employed in Germany. For 401(k) plans, Traditional IRAs, Roth IRAs and German occupational pensions, these rules must be examined separately.
Article 18A at a glance
Distinguish deferral, contribution relief and distributions
Moving countries does not automatically turn a recognized pension plan into an ordinary taxable investment account. However, recognition does not provide unlimited deductions for new contributions or a general exemption for later distributions.
| Provision | Subject | Practical significance |
|---|---|---|
| Paragraph 1 | Tax deferral for income earned within the plan | The participant is generally taxed only when amounts are paid to or for their benefit; a special rule addresses transfers to other plans. |
| Paragraph 2 | Cross-border contributions and accrued benefits | Relief in the country of employment or self-employment, subject to the additional conditions in paragraph 3. |
| Paragraph 3 | Conditions for paragraph 2 | Prior contributions and recognition as a generally corresponding plan. |
| Paragraph 4 | Definition of a pension plan | Determines the arrangements covered, together with paragraph 16 of the Protocol. |
| Paragraph 5 | Special rule for certain U.S. citizens in Germany | U.S. relief for employment-related contributions and accrued benefits in a German plan. |
Legal basis: Article 18A of the Germany–U.S. treaty and paragraph 16 of the Protocol .
Article 18A(1)
The accumulation phase generally remains protected
If an individual resident in one contracting state under the treaty is a member or beneficiary of a pension plan established in the other contracting state, income earned within that plan may generally be taxed only when, and to the extent that, it is paid to or for the benefit of that individual.
Interest, dividends and realized capital gains retained in the recognized plan are therefore generally not taxed currently as the participant’s income. An internal sale followed by reinvestment is not, by itself, a distribution.
- Establish treaty residence under Article 4
- Identify the plan in the other contracting state
- Document the plan’s qualifying status
- Distinguish internal income from payments to the participant
- Include payments made for the participant’s benefit
- Assess transfers to other plans separately
Current employment is not required
Paragraph 1 requires neither current employment nor deductibility of new contributions. It may therefore also cover a plan to which contributions have stopped or a plan held by a retiree.
This is not a payment deferral under section 222 AO
Here, tax deferral means postponing income recognition under the treaty. It does not mean postponing payment of tax already assessed. Nor does it determine the amount that will be taxable later.
Article 18A(4) and Protocol paragraph 16
Which pension plans does the treaty identify?
The general definition covers an arrangement established in a contracting state and operated principally to administer or provide pension or retirement benefits, or to earn income for the benefit of such arrangements. Paragraph 16(a) of the Protocol specifically includes the following plans:
| Plan | Statutory basis | Classification |
|---|---|---|
| U.S. qualified plans | Section 401(a) IRC | Includes appropriately qualified plans containing a 401(k) arrangement. |
| Traditional IRA | Section 408 IRC | Individual retirement accounts and individual retirement annuities. |
| SEP and SIMPLE | Sections 408(k) and 408(p) IRC | The individual retirement arrangements and accounts identified in the Protocol are included. |
| Roth IRA | Section 408A IRC | Expressly a pension plan; a special exception applies to German recognition for certain contribution rules. |
| 403(a) and 403(b) | Sections 403(a) and 403(b) IRC | Qualified annuity plans and the specified 403(b) arrangements. |
| Governmental 457(b) plan | Section 457(b) IRC | Governmental plans are expressly listed. Other 457 arrangements must not be treated as equivalent without analysis. |
| German occupational pensions | Section 1 of the German Occupational Pensions Act (BetrAVG) | The corresponding occupational pension arrangements are identified on the German side. |
The list also extends to identical or substantially similar plans established under subsequent legislation. Comparability must be specifically substantiated for new or unusual arrangements.
An ordinary investment account, private fund savings arrangement or insurance policy does not become a pension plan merely because it is intended to finance retirement. Riester, basic pension (Basisrente/Rürup) and other private pension contracts likewise cannot be equated with the expressly listed occupational pensions solely because they receive German tax relief. Their classification requires a separate analysis.
The label “Roth” is also insufficient: a Roth IRA and a Roth account within a 401(k) plan are different arrangements.
Article 18A(2)
When contributions qualify for relief in the other work state
A participant in a plan established in one contracting state who works as an employee or self-employed individual in the other contracting state may also obtain contribution relief there, subject to the treaty’s conditions.
Contributions made by or for the individual
Paragraph 2(a) provides for contributions relating to the relevant work period to be deducted or excluded when calculating taxable income in the work state.
Its wording is not limited to employer contributions. How relief is implemented in a particular German assessment must nevertheless be examined separately.
Employer contributions and accrued benefits
Paragraph 2(b) addresses, in particular, the exclusion from the employee’s taxable income of qualifying employer contributions and benefits accrued during the work period.
It also provides for the deduction of corresponding employer contributions when determining business profits in the work state.
Relief is limited to the amount the work state provides for its own recognized plans. Foreign contribution limits are therefore not automatically imported in full. Citizenship and U.S. immigration status may also restrict U.S. relief.
The U.S. Technical Explanation further explains that paragraph 2 does not necessarily require a change of treaty residence to the work state. The work performed and the other treaty conditions are decisive.
Article 18A(3)
Prior contributions and plan recognition are essential
Contributions before work begins
Contributions must already have been made by or on behalf of the participant, or by or on behalf of the participant’s employer, before the individual starts employment or self-employment in the other state.
Simply opening an unfunded account is insufficient. The relevant date is the start of the work, not automatically a registration or moving date.
A generally corresponding plan
The competent authority of the work state must accept the foreign plan as generally corresponding to a pension plan recognized for tax purposes in that state.
Treaty recognition already exists for the cases covered by paragraph 16(b) of the Protocol. Separate individual recognition is therefore not additionally required in every standard case.
According to the U.S. Technical Explanation, contributions to a predecessor plan replaced by the continuing plan can also count in the circumstances it describes. Continuity must be demonstrable; simply opening any new plan after changing work states is insufficient.
For the purposes of paragraph 16(b), Germany generally recognizes the U.S. plans listed in paragraph 16(a)(aa) as corresponding to plans under section 1 BetrAVG and provides corresponding relief under section 3 no. 63 of the German Income Tax Act (EStG). Roth IRAs are expressly excluded from this particular German recognition.
The exception concerns the purposes of Article 18A(3)(b) and (5)(d) identified in paragraph 16(b). It does not remove a Roth IRA’s pension-plan status or generally remove protection for its income under paragraph 1.
Article 18A(5)
A U.S. citizen’s German occupational pension
U.S. citizens may remain subject to U.S. taxation while living in Germany. Paragraph 5 provides special relief for contributions and employment-related benefits accrued in a German pension plan.
- The individual is a U.S. citizen resident in Germany under the treaty.
- The individual is employed in Germany. Unlike paragraph 2, paragraph 5 does not cover self-employment in its wording.
- The relevant employment income is taxable in Germany.
- The remuneration is borne by an employer resident in Germany or by a permanent establishment situated in Germany.
- The individual participates in a plan established in Germany; the contributions or benefits relate to the relevant employment.
- The conditions for German relief and U.S. recognition as a generally corresponding plan are satisfied.
Relief is limited by the rules in both countries
U.S. relief applies only to the extent that Germany grants tax relief for the contributions or benefits. It must also not exceed the U.S. relief available for a generally comparable U.S. plan.
A German exemption therefore does not automatically produce a U.S. exemption of the same amount.
Contribution limits cannot all be used twice
Under paragraph 5(c), the qualifying German contributions and benefits must also be taken into account when determining eligibility for corresponding U.S. plan benefits.
German and U.S. relief limits therefore cannot simply be used independently in full without analysis.
Article 1(4) and (5)
The saving clause affects U.S. application
The United States generally reserves the right to tax its citizens and persons resident there under the treaty. Article 1(5) specifies which treaty benefits remain available despite this rule. The distinctions are particularly important for Article 18A:
| Provision | Exception to the saving clause | Effect for U.S. taxation |
|---|---|---|
| Article 18A(1) | Article 1(5)(a) | Treaty deferral may also benefit U.S. citizens and U.S. residents if its conditions are met. |
| Article 18A(2) | Article 1(5)(b) | The U.S. exception is limited to individuals who are neither U.S. citizens nor persons with immigrant status there. |
| Article 18A(5) | Article 1(5)(a) | The special relief for U.S. citizens in Germany remains available subject to its own requirements. |
Example: An individual working in the United States who holds a German occupational pension plan may obtain protection for its income under paragraph 1. U.S. deductibility of new contributions under paragraph 2 is a separate question. Obtaining a green card or U.S. citizenship may exclude that contribution relief; it does not automatically remove paragraph 1 protection.
This distinction is expressly explained in the U.S. Technical Explanation, document page 28 .
Rollovers and conversions
Plan transfers are expressly addressed
Article 18A(1) does more than distinguish accumulation from distribution. Its wording also excepts income transferred to another pension plan in the other contracting state.
Transfers between U.S. plans
For a German treaty resident, a transfer from one recognized U.S. plan to another recognized U.S. plan may fall within this rule. A direct rollover from a 401(k) to a Traditional IRA therefore requires a different analysis from a distribution for personal use.
The source plan, destination plan, participant’s status and actual payment route must be documented.
Roth conversions
Traditional IRAs and Roth IRAs are both listed in the Protocol. The transfer provision is therefore an important basis for interpreting the treaty in a conversion case.
However, it does not give a blanket answer to every question about previously tax-favored contributions, U.S. conversion tax or subsequent German contribution basis. A general assurance of German tax neutrality would go too far.
Transfers from the United States to Germany
The rule refers to another plan in the other contracting state. For an individual resident in Germany, this means another U.S. plan.
A transfer from a U.S. plan to a German contract is therefore not made tax-neutral by this wording alone.
Payments and withheld amounts
A payment to the holder followed by a later redeposit requires its own analysis. Compliance with a U.S. rollover deadline does not automatically resolve every German tax question.
Amounts used privately or withheld to settle tax must be assessed separately from the assets actually transferred.
Further reading: Roth IRAs and Roth conversions for German residents .
Taxing rights and the taxable amount
What happens when benefits are paid?
Deferral under Article 18A does not provide permanent exemption. When a benefit is actually paid, the treaty allocation of taxing rights must be considered together with domestic taxation.
Identify the treaty allocation rule
Article 18(1) concerns pensions and similar remuneration for past employment. Article 18(2) concerns annuities within the treaty’s specific definition.
If no more specific allocation rule applies, Article 21 may need to be considered. Government service benefits and social security benefits have their own rules in Article 19 and Article 18(5), respectively.
Apply German income tax law
Where Germany has taxing rights, section 22 no. 5 EStG is particularly relevant to benefits from comparable external pension institutions. The specific income category nevertheless depends on the plan’s structure.
Distinguish contributions that received qualifying relief from those that did not, and periodic pensions from capital payments. The term “pension plan” alone does not determine the German taxable amount.
Since the 2025 assessment period, section 22 no. 5 sentence 2 EStG expressly includes comparable tax relief actually granted for contributions to foreign pension institutions. To the extent that a benefit covered by the provision derives from such contributions, full taxation on distribution under sentence 1 may apply.
The earlier position that contribution relief granted exclusively in the United States was irrelevant for German taxation therefore cannot be applied unchanged to current distributions.
For U.S. citizens, the saving clause and double taxation relief rules, particularly Article 23(5), must also be considered. U.S. tax does not become creditable in Germany merely because it has been paid.
Case law and administrative guidance
Sources that help resolve specific questions
German Finance Ministry: contributions to foreign arrangements
The Federal Ministry of Finance (BMF) letter of August 12, 2021 on occupational pensions, as amended, addresses contributions to foreign arrangements in paragraph 36.
Paragraph 37 also expressly identifies the possible direct application of section 3 no. 63 EStG under an international agreement and refers to paragraph 16 of the Germany–U.S. treaty Protocol.
This supports separate analysis of domestic contribution relief and treaty relief. It is not a blanket promise of a deduction for every U.S. plan.
BMF letter reproduced in the official 2026 wage tax guidanceMunich Fiscal Court: Traditional IRA contributions
In its judgment of October 14, 2022 – 11 K 1814/21 – the Munich Fiscal Court allowed a special-expense deduction, by reference to the treaty, for personal contributions to Traditional IRAs that had been funded before the taxpayer moved to Germany.
The appeal, I R 66/23, remains listed as pending by the BFH as of this article’s review date. The issue must therefore not be presented as definitively resolved by the highest court. The disputed contributions were not made to Roth IRAs.
BFH, October 28, 2020 – X R 29/18
The decision concerns a 401(k) distribution in the 2011 tax year. Under the law then applicable, U.S. contribution relief alone did not justify full German taxation on distribution.
The judgment illustrates the need to distinguish treaty recognition from the German taxable amount. For distributions from 2025 onward, the intervening legislative amendment must be considered.
Read the BFH judgmentBFH, June 25, 2025 – X R 23/22
For the disputed 401(k) capital payment received in 2015, the BFH classified the taxation under section 22 no. 5 sentence 2 letter (b) EStG. Section 20(1) no. 6 applies in the version governing the contract.
The BFH based the structural comparability of the 401(k) on its recognition in the treaty Protocol. Because of the specific Roth exception, this reasoning must not be applied to Roth IRAs without further analysis.
Read the BFH judgmentCommon situations
What changes when moving between Germany and the United States?
A 401(k) remains in place after moving to Germany
An individual becomes a German treaty resident and leaves an existing 401(k) unchanged in the United States. Income retained in the plan may remain deferred under paragraph 1. A later distribution is assessed separately under the treaty and German law.
New IRA contributions while working in Germany
Recognition of the IRA does not automatically protect every new contribution. Prior funding, plan comparability, German relief limits and the specific deduction provision must be examined. Case I R 66/23 is relevant to personal Traditional IRA contributions.
A German plan while working in the United States
An existing occupational pension plan may qualify under paragraph 1 for its income. U.S. relief for new contributions additionally requires consideration of paragraphs 2 and 3, citizenship and immigration status.
A U.S. citizen joins a German occupational plan
For a German treaty resident with qualifying employment, paragraph 5 may provide U.S. relief. Joining a new plan is not disqualified merely because no contributions were made to it before the German employment began.
Documentation and reporting
Which documents are needed?
Plan and contribution history
- Plan contract, custodial agreement or pension commitment
- Statutory basis and evidence of plan qualification
- Opening date and date of the first actual contribution
- Employee and employer contributions
- Rollovers, conversions and earlier distributions
- Tax relief actually granted in both countries
Individual and employment
- Treaty residence and relevant periods
- U.S. citizenship, visa or green card status
- Start date and type of work in the other state
- Employer residence and any relevant permanent establishment
- Allocation of contributions to the relevant employment
- Evidence and calculation of the applicable relief limits
See: IRS questions and answers on Form 8938 and IRS guidance on foreign pension plans .
Frequently asked questions
Article 18A of the Germany–U.S. tax treaty
Does Article 18A apply only to employees on assignment?
Must contributions have been made before moving?
Are Roth IRAs excluded from the treaty?
Can I use the full U.S. contribution limits in Germany?
What changes if I obtain a green card?
Is a rollover always tax-neutral?
Does Article 18A determine German tax on distributions?
Does treaty protection eliminate U.S. reporting?
Primary sources
Treaty, administrative guidance and case law
- Germany–U.S. income tax treaty, consolidated German–English publication of June 4, 2008 (PDF) – particularly Articles 1, 4, 18, 18A, 19, 21 and 23 and Protocol paragraph 16.
- U.S. Treasury Technical Explanation of the 2006 amending Protocol (PDF, 2007) – Article 18A on document pages 25–28.
- BMF letter of August 12, 2021, amended by the letter of March 18, 2022 – particularly paragraphs 36 and 37; officially reproduced in the 2026 wage tax guidance.
- Munich Fiscal Court judgment of October 14, 2022 – 11 K 1814/21 ; pending BFH appeal I R 66/23 .
- BFH judgment of October 28, 2020 – X R 29/18 – 401(k) distribution and the limits of deferred taxation under the former law.
- BFH judgment of June 25, 2025 – X R 23/22 – structural comparability and classification of 401(k) capital payments.
- Section 22 EStG – particularly no. 5 on taxation of retirement benefits.
- IRS: Form 8938 questions on foreign pension plans .
Further insights
Related topics
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