Moving from the USA to Germany
May 11, 2013 | 30,00 EUR | answered by StB Patrick Färber
Dear Mr. Burchardt,
1) We are German citizens, living in the USA for about 14 years, and are planning to return to Germany at the end of 2013.
2) I am now at retirement age, but my wife is not yet. However, she does not plan to work again.
3) We have Roth IRA, Traditional IRA (rollover from 401K), and Simple IRA (instead of 401K with the last employer) accounts in the USA.
4) Are the distributions from these retirement accounts taxable in Germany? As you know, Roth IRA was funded with after-tax income, while Simple IRA and Traditional IRA were funded with pre-tax income.
5) I assume that Social Security payments in the USA will be taxable in Germany. Is that correct?
Regards
Dear inquirer,
Your question is complex and requires detailed knowledge of American retirement and tax law. It is best addressed by a specialist in the field of D-USA.
Considering your commitment, I can at least help guide you towards the answers as follows:
Please note that the tax distribution law (DBA D-USA) regarding the income sources you mentioned is set to change from 2015 (rather unfavorably). Therefore, if the initial payout occurs before 2015, the following applies:
For all income sources mentioned (IRA's and social security), Germany has sole taxation rights if you are a resident there from 2014 onward. You will be classified as pension income (Art. 18) or other income (Art. 21), with no difference in taxation rights consequences.
When withdrawing from IRA's or Social Securities, the USA generally withholds withholding tax (30% for IRA and 30% of 85% for Soc. Sec.). You can prevent this by applying for a (withholding tax-exempt) payout (likely form W-8BEN).
The income classification is based on German law:
- Soc. Sec. payments are to be taxed like German statutory pensions, depending on when you retire. For example, if retirement starts in 2014, out of EUR 100 in pension, EUR 68 (68%) would be subject to tax and EUR 32 (32%) tax-free. If the pension increases, the tax-free portion remains at 32% of the increased amount. The tax portion decreases/increases by 2 percentage points per year for earlier or later retirements, starting at 50% for retirements before 2005.
- IRAs are more complex to assess, requiring more details. Taxation is based on § 22 No. 5, depending on whether the contributions were tax-advantaged, like a pension (as above), under § 20 Para. 1 No. 6 EStG with capital gains tax of 26.375% (including solidarity surcharge, excluding church tax) for lump-sum payments, or solely on an earnings portion (interest portion of the pension).
The Roth-IRA has a special status, not recognized as a tax-advantaged "pension plan" under German occupational pension law, unlike other IRAs.
You may need to consult a specialist for this.
I hope I could outline the main points for you. I recommend thoroughly researching or seeking advice on this matter.
Best regards,
Patrick Färber
Tax consultant
patrickfaerber@arcor.de
