Germany–U.S. tax treaty · Retirement plans
Pension Plans under Article 18A of the Germany–U.S. tax treaty
Article 18A of the Germany–U.S. tax treaty contains special rules for cross-border retirement plans. It generally protects tax deferral inside certain German and U.S. pension plans and, subject to additional requirements, can also provide relief for contributions made while working in the other country. Article 18A is therefore a key treaty provision for 401(k) plans, Traditional IRAs, Roth IRAs and German occupational pensions.
Article 18A(1)
The country of residence generally taxes plan earnings only when they are distributed
If an individual is resident in one treaty country and is a participant in or beneficiary of a pension plan established in the other treaty country, income accruing inside the plan is generally taxed only when and to the extent it is distributed to that individual.
Article 18A(1) therefore generally prevents a move between Germany and the United States from turning interest, dividends or investment growth inside a qualifying retirement plan into annually taxable income at participant level.
Tax deferral
Article 18A protects the accumulation phase – not automatically the later distribution
The provision first deals with income accruing within the pension plan. It generally prevents that income from being taxed at participant level during the accumulation phase.
Once an actual distribution is made, a separate analysis is required to determine which country has the treaty taxing right and how that country taxes the payment under its domestic law.
- identify the pension plan
- determine treaty residence
- apply Article 18A(1)
- plan earnings generally remain tax-deferred
- review plan-to-plan transfers separately
- analyze distributions under Article 18 and domestic law
Which plans are covered?
The treaty protocol expressly identifies key German and U.S. retirement arrangements
The protocol to the Germany–U.S. tax treaty clarifies the meaning of “pension plan.” On the U.S. side, several statutory retirement arrangements are expressly listed. On the German side, the protocol refers in particular to occupational pension arrangements under Section 1 of the German Occupational Pensions Act.
Section 401(a) qualified plans
Qualified plans under Section 401(a) of the Internal Revenue Code are expressly included. This generally covers standard 401(k) structures maintained within a qualifying plan.
Traditional IRA
Individual Retirement Accounts and Individual Retirement Annuities under Section 408 IRC are expressly listed.
Roth IRA
Roth IRAs under Section 408A IRC are also expressly included as pension plans, although a special exception applies under certain comparability rules.
403(a) and 403(b) plans
Qualified annuity plans under Section 403(a) and retirement arrangements under Section 403(b) are expressly covered.
Governmental 457(b) plans
Certain governmental deferred-compensation plans under Section 457(b) are also expressly listed.
German occupational pensions
On the German side, the protocol expressly refers to retirement arrangements within Section 1 of the German Occupational Pensions Act.
General definition
The account label alone does not determine treaty status
Article 18A defines a pension plan broadly as an arrangement established in a treaty country that is principally designed to provide retirement or pension benefits or to earn income for the benefit of such arrangements.
The express list in the protocol provides certainty for common plans. Less familiar arrangements may require a separate analysis of whether they meet the treaty definition and the additional Article 18A requirements.
Article 18A contribution rules
Contributions made while working in the other country may also receive tax relief
Article 18A goes beyond tax deferral of plan earnings. If a participant in a pension plan works or carries on a qualifying activity in the other treaty country, contributions to the existing foreign plan can, subject to specific requirements, receive tax recognition in that other country.
Employer contributions and pension rights earned during that period may also receive favorable treatment. However, the treaty relief is generally limited to the relief that the country of work would grant for a comparable domestic pension plan.
Employee contributions
Employee contributions may, subject to the treaty requirements, be deductible or excluded from income in the country of work.
Employer contributions
Employer contributions may, where the requirements are met, avoid immediate taxation to the employee.
Limit on relief
Treaty relief is generally limited to the level of relief that the country of work provides for a comparable domestic pension arrangement.
No automatic recognition
The existence of a 401(k), IRA or German occupational pension alone is not enough. The additional Article 18A requirements must be satisfied.
Additional requirements
Cross-border contribution relief is subject to stricter conditions
The treaty contribution rules do not automatically apply to every foreign pension plan. Among other things, the individual generally must already have participated in the plan before beginning work in the other country.
The country of work must also recognize the foreign arrangement as generally corresponding to a pension plan for which it grants tax relief under its own law.
Corresponding pension plans
The treaty protocol already identifies correspondence for major standard plans
Germany generally recognizes the U.S. plans expressly listed in the protocol as corresponding to German occupational pension arrangements for the relevant contribution rules. Roth IRAs are expressly excluded from this general correspondence rule.
Conversely, the United States generally recognizes German occupational pension arrangements under Section 1 of the German Occupational Pensions Act as corresponding pension plans.
U.S. citizens living in Germany
Article 18A contains an additional rule for U.S. citizens participating in German pension plans
For U.S. citizens resident in Germany and working here for a German employer or German permanent establishment, Article 18A contains an additional rule designed to coordinate pension contributions with the U.S. tax system.
Subject to the treaty requirements, contributions and employer benefits to a qualifying German pension plan may also receive favorable treatment when determining U.S. taxable income. The U.S. relief is limited by both the relief granted in Germany and the relief available for a generally comparable U.S. pension arrangement.
U.S. citizen
The special rule applies specifically to U.S. citizens who are resident in Germany.
German employment
The employment income must be taxable in Germany and borne by a German employer or German permanent establishment.
German pension plan
The employee must participate in or be a beneficiary of a qualifying German pension plan.
U.S. tax relief
Where the treaty requirements are met, contributions and employer benefits may receive coordinated U.S. tax treatment.
Article 18A vs. Article 18
The analysis does not end with Article 18A once money is distributed
Article 18A mainly protects the accumulation phase and governs certain cross-border contributions. Once a distribution is made, Article 18 of the treaty generally becomes central to determining which country has the right to tax pension income from past employment.
The actual taxable amount is then determined under the domestic tax law of the country entitled to tax the payment.
Typical applications
Where Article 18A is particularly important in practice
401(k) after moving to Germany
A qualifying 401(k) generally remains treaty-protected, so earnings inside the plan are not taxed annually merely because the participant now lives in Germany.
Traditional IRA in Germany
A Traditional IRA is expressly listed as a U.S. pension plan and can generally benefit from Article 18A tax deferral.
Roth IRA in Germany
A Roth IRA is generally a pension plan for treaty purposes but has a special status under the contribution-correspondence rules.
German occupational pension in the U.S.
German occupational pension arrangements under Section 1 BetrAVG can also remain protected under Article 18A after a move to the United States.
Common mistakes
Common misunderstandings about Article 18A
Treating Article 18A as a permanent exemption
The provision generally protects tax deferral inside the plan. It does not automatically make later distributions tax-free.
Treating contributions and plan earnings the same
New contributions are subject to stricter treaty requirements than the general tax deferral rule under Article 18A(1).
Assuming every U.S. retirement account qualifies
The arrangement must qualify as a pension plan under the treaty. Not every investment account intended for retirement satisfies the treaty requirements.
Treating Roth and Traditional IRAs the same
Roth IRAs are pension plans but are expressly treated differently under certain correspondence rules.
Forgetting Article 18
Once an actual pension distribution is made, Article 18 must also be considered when allocating taxing rights.
Skipping domestic tax law
The treaty allocates taxing rights. It does not by itself determine how much of a distribution is taxable under German or U.S. domestic law.
Related guidance
Related topics
Frequently asked questions
Article 18A of the Germany–U.S. tax treaty
What does Article 18A of the Germany–U.S. tax treaty cover?
Does Article 18A apply to a 401(k)?
Does Article 18A apply to a Traditional IRA?
Does Article 18A apply to a Roth IRA?
Does Article 18A apply to German occupational pensions?
Does Germany tax earnings inside my 401(k) or IRA every year after I move there?
Can I continue making tax-advantaged contributions after moving?
Does Article 18A determine how a pension distribution is taxed?
Germany–U.S. tax advice
Do you have retirement assets in Germany or the United States?
We review whether your 401(k), IRA, Roth IRA or German retirement arrangement qualifies under Article 18A, how the accumulation phase is protected, whether cross-border contributions receive tax recognition and how later distributions are treated under the treaty and German tax law.
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