If you're planning a move to Germany and you've got retirement savings sitting in a US 401(k) or Roth IRA, there's a question worth answering before you book the flight: how will Germany tax that money when you eventually pull it out?
It matters more than it used to. A German tax law change that took effect on 1 January 2025 reshaped how foreign retirement accounts are treated, and the new rules are fully in force in 2026. For a lot of Americans, the result is a noticeably bigger tax bill on traditional 401(k) and IRA withdrawals than the same move would have triggered a couple of years ago.
Here's what changed, how 401(k)s and Roth IRAs are each treated, and what to think through before and after you become a German tax resident.
This article is general information, not personal tax advice. Cross-border retirement taxation is genuinely complicated and depends on your exact situation. Talk to a tax advisor who handles both US and German tax before making any decisions.
Key Facts at a Glance
| Account type | How Germany taxes withdrawals (2026) |
|---|---|
| Traditional 401(k) | Full payout (contributions + gains) taxable |
| Traditional IRA | Full payout taxable, same as 401(k) |
| Roth IRA | Only the gains taxable (not tax-free) |
| Roth 401(k) | Treated like a Roth — gains taxable |
| When the rule changed | 1 January 2025 (Annual Tax Act 2024) |
| Who taxes first | Country of residence — Germany, if you live there |
| Top German income tax rate | 45% |
| Relief from double tax | Foreign tax credits, not exemption |
Why Your US Retirement Account Suddenly Matters in Germany
Once you become a tax resident in Germany — which can happen as soon as you register an address and set up your life there — Germany taxes your worldwide income. That includes salary from abroad, investment income, and distributions from foreign retirement accounts.
For US citizens that creates a two-layer problem. The US taxes its citizens no matter where they live, and Germany taxes you as a resident. So the same 401(k) withdrawal can land on two tax authorities' desks at once. How those two systems interact, especially after the 2025 reform, decides how much of your retirement money you actually keep.
How It Worked Before 2025
Until the law changed, Germany treated US retirement plans fairly generously. A 2020 Federal Fiscal Court ruling meant that when you took money out of a 401(k) or traditional IRA, Germany only taxed the growth — the interest, dividends, and capital gains. Your original contributions were largely left out of the German calculation.
In practice that meant lower taxable income and a smaller tax bill than you'd face on a comparable German pension. It was a real advantage for expats, and it's the treatment a lot of older guidance still describes.
What Changed in 2025
Germany closed that gap. Under the Annual Tax Act 2024 (Jahressteuergesetz 2024), from 1 January 2025 the rule is simple: if your retirement contributions got a tax break abroad, Germany now taxes the full payout, not just the gains.
What counts as a tax break? Contributions made from pre-tax income, contributions that were tax-deductible, or employer contributions that were tax-free. If your account benefited from any of those in the US — and a traditional 401(k) ticks every box — Germany now factors that in when you withdraw.
How a Traditional 401(k) Is Taxed in Germany Now
A traditional 401(k) is funded with pre-tax dollars, grows tax-free, and is taxed as income when you withdraw in the US. Because those contributions were tax-advantaged, Germany now treats the entire withdrawal as taxable income.
A simple illustration shows the size of the shift. Say you contributed $100,000 over the years and the account grew to $180,000:
- Before 2025: Germany would have taxed only the $80,000 of growth.
- From 2025 onward: the full $180,000 counts as taxable income in Germany.
That larger number can push you into a higher bracket, and German income tax climbs to a top rate of 45%. The tax-deferred growth that makes a 401(k) attractive in the US effectively gets unwound when you draw on it as a German resident. This is why the timing and size of withdrawals matters more than it ever did — our guide to taxes in Germany for expats covers how the wider system fits together.
How a Roth IRA Is Taxed in Germany
This is the part that catches people out, so it's worth being blunt: Germany does not honour the tax-free status of a Roth IRA.
In the US a Roth is funded with after-tax money and qualified withdrawals come out completely tax-free. Germany doesn't recognise that. Instead, it taxes the gains — the difference between what you put in and what you take out.
An example:
- Total contributions: $50,000
- Total value at withdrawal: $90,000
- Germany taxes the $40,000 of growth
Worth noting: this part did not change in 2025. Roth gains were taxable in Germany before the reform and still are. The mistake to avoid is assuming "tax-free in the US" means "tax-free in Germany." It doesn't.
Rollovers and Transfers Still Count
In the US, moving money between retirement accounts — a 401(k) to an IRA, one IRA to another — is routine and usually tax-neutral if you follow IRS rules.
Germany now looks at whether those transfers involved tax-advantaged money. If they did, that history can feed into how your eventual withdrawals are taxed. The practical takeaway: your account paper trail matters more than before. Keep clear records of contributions, rollovers, and how each account was funded, because if you can't document it, the tax office may assume the least favourable version.
Double Taxation and the US-Germany Treaty
The US-Germany Income Tax Treaty decides who gets to tax what. Under Article 18, retirement income is generally taxed in your country of residence at the time of the distribution. Live in Germany, and Germany has the primary claim.
The catch for Americans is the treaty's saving clause (Article 1, paragraph 4), which lets the US tax its own citizens almost as if the treaty weren't there. So you can't simply point to the treaty and walk away from the US bill.
In practice, double taxation is handled through foreign tax credits rather than an exemption — you offset tax paid in one country against what you owe in the other. Getting this right is fiddly, and it's the core of why this isn't a do-it-yourself area. Our guide to avoiding double taxation as a US expat goes deeper on the credit mechanics.
One useful carve-out: the 2020 court ruling treated contributions you made before you became a German taxpayer differently. If you funded the account entirely while living and being taxed in the US, the German treatment of those contributions can be more favourable. This is exactly the kind of detail a specialist will want to map out for your situation.
Don't Forget the US Reporting Side
Living in Germany doesn't switch off your US obligations. Holding these accounts abroad usually means:
- FBAR — the Report of Foreign Bank and Financial Accounts, if your foreign accounts cross the reporting threshold.
- FATCA — Foreign Account Tax Compliance Act reporting on certain foreign financial assets.
- Form W-8BEN — filed with your US plan provider to claim treaty benefits and reduce withholding. Even with it filed correctly, some institutions still withhold up to 30% of a distribution; that over-withholding is usually refundable, but it ties up your money in the meantime.
Missing these filings carries steep penalties, so they belong on your checklist alongside the German side.
Planning Moves Worth Considering
There's no one-size-fits-all answer, but these are the levers people work with:
- Review your accounts before you move. Know which accounts are pre-tax versus after-tax, and estimate your future German exposure while you still have options.
- Think about withdrawal timing. Depending on your situation, drawing funds before you become a German tax resident — or spreading withdrawals across years to avoid a bracket-spiking lump sum — can change the outcome.
- Mind your residency date. Your tax residency status is what gives Germany the right to tax withdrawals. When you register and establish residence genuinely matters.
- Keep meticulous records. Contributions, gains, rollovers, and US tax treatment — document all of it.
Common Mistakes Expats Make
- Assuming a Roth IRA stays tax-free in Germany (it doesn't — the gains are taxed).
- Underestimating how quickly German tax residency kicks in after you register an address.
- Waiting until after the move to plan, when most of the useful options have already closed.
- Failing to keep documentation, leaving the tax office to assume the worst case.
Frequently Asked Questions
Is my 401(k) taxed in Germany? Yes. Since 1 January 2025, Germany taxes the full payout of a traditional 401(k) — both contributions and gains — for German tax residents, because the contributions were tax-advantaged in the US. Previously only the growth was taxed.
Are Roth IRA withdrawals tax-free in Germany? No. Germany does not recognise the US tax-free status of a Roth IRA. It taxes the gains — the difference between your contributions and the total withdrawal — even though the same money is tax-free in the US.
Will I be taxed twice on my retirement withdrawals? You can face tax in both countries because the US taxes its citizens regardless of residence. Double taxation is usually relieved through foreign tax credits rather than a full exemption, which is why coordinated filing in both countries matters.
Can I avoid German tax by withdrawing before I move? Possibly. Because Germany's right to tax depends on your residency, taking distributions before you become a German tax resident can change the result. The timing is highly individual, so get specialist advice before acting.
Do I still have to file US tax forms while living in Germany? Yes. US citizens generally still file US returns and may need FBAR and FATCA reporting on foreign accounts, plus a W-8BEN with your plan provider. The penalties for missing these are significant.
At Move2Europe, we help US professionals plan their move to Germany end to end — and connect them with the right cross-border tax specialists so retirement accounts don't become an expensive surprise.
Book a free consultation and let's map out your move with the financial details handled properly.
Official sources:
- German Income Tax Act, §22 EStG (gesetze-im-internet.de) — German law on the taxation of "other income," including foreign pensions
- Federal Central Tax Office (BZSt) — Germany's authority on cross-border taxation and FATCA reporting
- IRS — Germany Tax Treaty Documents — full text of the US-Germany Income Tax Treaty
- IRS — Report of Foreign Bank and Financial Accounts (FBAR) — US reporting requirements for foreign accounts