# German Retirement Distributions



## FFMralph

Hello again,

how are German retirement distributions (IRA, Pension und SSN) reported. If I understood the treaty correctly, the Savings Clause requires US citizens abroad to declare the same amount (%) taxable as US citizens living in the US.

If so, how do you determine the amount and how do you report it?
If not so, what do you suggest?

Under German retirement distributions I include:

-- German Rente (BfA)
-- Betriebsrente (Company pensions)
-- Riesterente (I believe this would be an IRA)

Any information about about how these incomes are handled on the 1040 would be appriciated.


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## Bevdeforges

The BfA and the Betriebsrente you have to declare as income just like any other - and then take a credit against it for any German tax you pay on that.

The Riesterente - if it functions like an IRA in the US - can get complicated. If that is a tax deferred program (like the US IRA), then you should have declared your contributions along with the rest of your income when you were making them. (I.e. if you declared your gross income, and not your "German taxable income" you would then have taken the FEIE against that and thus you'd be free of tax on your contributions.) If you have been declaring the interest on the account(s) as interest income as it was earned over the years, then you're home free - and taking money out of the account should have no income impact.

If you haven't been declaring the earnings on the account, then you need to check the IRS publication 575 on Pension and Annuity Income. You will probably wind up treating your Riesterentre as an annuity, which means you only declare the portion of the distribution that represents interest on your contributions that hasn't been declared yet.
Cheers,
Bev


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## FFMralph

@Bev, thanks.
Does the Betriebsrente get declared on Line 16a and b? 
In Germany it is 100% taxable so it is 100% taxable in the US. Correct?

Does the BfA (or german SSN) get declared on Line 20a and b?
In Germany my BfA receipts will be 80% taxable so will they only be 80% taxable in the US?


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## Bevdeforges

FFMralph said:


> @Bev, thanks.
> Does the Betriebsrente get declared on Line 16a and b?
> In Germany it is 100% taxable so it is 100% taxable in the US. Correct?
> 
> Does the BfA (or german SSN) get declared on Line 20a and b?
> In Germany my BfA receipts will be 80% taxable so will they only be 80% taxable in the US?


For US tax purposes it matters NOT AT ALL how it's taxed in Germany. 

Both the Betriebsrente and the BfA would appear to be pensions, and thus reportable on line 16a and b. I'm fairly sure that line 20 is for US Social Security only. But take a look at this page on the IRS website, and check the references to the publications at the bottom of the page: The Taxation of Foreign Pension and Annuity Distributions
Cheers,
Bev


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## graubart

I don't know about Germany but in Canada, Canadian social security (CPP, OAS) is reported on line 20. Also, because of the U.S./Canada tax treaty, for Canadian residents, Canadian social security is taxable only in Canada. So the full amount goes in 20a and zero in 20b. This is what I did on my 2011 form 1040.

I think the U.S./German tax treaty may have a similar provision.


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## FFMralph

The BfA, which is the german public retirement, should be exempt from US taxation under the Provisions of the treaty.

*Article 1 §5a (General Scope)* rules out the "savings clause" in §4. 
"The provisions of paragraph 4 shall not affect the benefits conferred by the United States: 
a)under ..._(text deleted)_... paragraphs 3, 4 and 5 of Article 18 (Pensions, Annuities, Alimony, Child Support, and Social Security)..._(text deleted)_..."

*Article 18 §5 (Pensions, Annuities, Alimony, Child Support, and Social Security)* 
"Social security benefits paid under the social security legislation of a Contracting State and other public pensions (not dealt with in Article 19 (Government Service)) paid by a Contracting State to a resident of the other Contracting State shall be taxable only in that other Contracting State. In applying the preceding sentence, that other Contracting State shall treat such benefit or pension as though it were a social security benefit paid under the social security legislation of that other Contracting State."

The Betriebsrente, or Company Pension will definitely be US taxed.


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## graubart

When you take a treaty position, it is a good idea to notify the IRS. The official way is to attach a form 8833 to your return. In this case, I just filled in the identifying information then answered question 1 with the treaty country and article and question 5 with a one sentence explanation. The rest I left blank.


For the record, the relevant article for Canada is XVIII.5:

UNITED STATES - CANADA INCOME TAX CONVENTION

Article XVIII - Pensions and Annuities

5. Benefits under the social security legislation in a Contracting State paid to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.


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## Xpatrick

FFMralph said:


> The BfA, which is the german public retirement, should be exempt from US taxation under the Provisions of the treaty.
> ...
> *Article 18 §5 (Pensions, Annuities, Alimony, Child Support, and Social Security)*
> "Social security benefits paid under the social security legislation of a Contracting State and other public pensions (not dealt with in Article 19 (Government Service)) paid by a Contracting State to a resident of the other Contracting State shall be taxable only in that other Contracting State. In applying the preceding sentence, that other Contracting State shall treat such benefit or pension as though it were a social security benefit paid under the social security legislation of that other Contracting State."


Are you certain of this? The section seems to say nothing about Social Security paid by a Contracting State to a resident of that same Contracting State. Thus for a US citizen resident in Germany it would apply to US social security, but not Bfa. Or is this just my ignorance of legalese? I have recently retired and am trying to sort this all out.


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## Lukoscha

*Tax Jungle Germany - USA*



I am not quite sure whether my question here is related to the previous discussion 
here but I am giving it a try. 

Do I have to declare my *contributions* ( maybe my english is too german, what I mean is what I pay into the plans *and* what my employer pays into the plans )

of 

Rente ( State Organized, which is a obligatory for employees ) 
betriebliche Altersvorsorge ( saving Plan which is free of any tax during Accumulation )
Riester Sparplan ( saving Plan which is free of any tax and has also State contributions tax free ) 

My understanding would be, that i do not have to report any of those to the IRS as long as I accumulate, but I do not know whether the parts the employer contributes have to be declared as income although it is all in the accumulation phase and no payment is send to me.

Thanks a lot for your help:fingerscrossed:


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## BBCWatcher

Employer contributions are income, so yes, generally speaking. Exceptions would be if some provision in the U.S. tax code allows you to recognize the income as deferred, or if a tax treaty treaty says that income deserves special treatment.


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## Bevdeforges

For the state pension plan (Rente), you basically don't get to deduct your own contributions from your brutto salary when declaring your income to the IRS (but you do get to exclude the whole amount if you take the FEIE). You do NOT have to declare the employer contributions to the national retirement program.

You should probably check the US-German tax treaty to see what it has to say about who gets to tax the retirement benefits payments when you retire - but for many such treaties, the benefits are taxed by the country where they are coming from (i.e. Germany). 

This only applies to the national retirement benefit system. I don't know what the status is for the "savings plan" types of retirement plans, particularly the Betrieb one (which counts as a private retirement plan). 

You may want to check with the IRS office in Paris to see what they advise.
Cheers,
Bev


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## BBCWatcher

I agree that the portion of a payroll tax paid by an employer to a general social insurance program is not considered income. Employer contributions to your retirement account would be, in general. That's an important distinction.


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## FFMralph

In Germany, our employer pays contributions to various retirement funds, medical care insurance, disability insurance, an individual savings fund and various social care taxes. The normal individual cannot begin to sort it all out for US tax purposes. The best thing to do is take your taxable German income and report it as taxable US income. 1:1. Under FACTA, the only thing that is getting reported is what is in your account. Not what is on your earing statement. If you ever did get audited, which is doubtful, then you only pay interest on any unpaid taxes. After all, you didn't exclude the amounts purposely!


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## Bevdeforges

FFMralph said:


> In Germany, our employer pays contributions to various retirement funds, medical care insurance, disability insurance, an individual savings fund and various social care taxes. The normal individual cannot begin to sort it all out for US tax purposes. The best thing to do is take your taxable German income and report it as taxable US income. 1:1. Under FACTA, the only thing that is getting reported is what is in your account. Not what is on your earing statement. If you ever did get audited, which is doubtful, then you only pay interest on any unpaid taxes. After all, you didn't exclude the amounts purposely!


Some people do things that way, but officially, "taxable income" for German tax purposes is not at all the same as for US purposes. On the US forms, you are supposed to report your gross (brutto) income before all deductions and withholdings. "Taxable income" is something you calculate after deducting the appropriate adjustments, exemptions and deductions (itemized or standard). 

That said, however, the IRS has no way of knowing what salary you've been paid, so is relying on you to report that to them however you wind up doing it.
Cheers,
Bev


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