If you’re planning to relocate from the US to Germany and wish to continue contributing to your retirement savings, you may be asking – does Germany have 401k or a similar workplace retirement plan?
In this article, we’ll explore a potential 401k equivalent in Germany and highlight its similarities and key differences compared to 401k. We’ll also provide practical guidance for US expats on how to ensure financial security when living and working in Germany.
What You Will Learn
- Is there a 401(k) in Germany?
- What is Betriebliche Altersvorsorge (bAV)?
- What are the main similarities and differences between 401(k) and bAV?
- Can you contribute to a bAV as a US expat?
Is There a 401(k) In Germany?
401(k) is a workplace retirement plan available exclusively to employees in the US, and as such, it doesn’t have a direct equivalent in Germany or elsewhere.
However, US expats working and residing in Germany may enrol in a local employer-sponsored retirement plan—Betriebliche Altersvorsorge (bAV).
bAV is a retirement scheme that serves as a 401(k) alternative in Germany. Like the 401(k), it enables employees to grow their retirement savings in a tax-efficient manner by contributing to their retirement fund through salary deductions.
What Is Betriebliche Altersvorsorge (bAV)?
Betriebliche Altersvorsorge (bAV) is Germany’s employer-sponsored pension scheme, also known as a company pension. As an integral component of the second pillar of Germany’s three-pillar pension system—consisting of state, company, and private pensions—bAV is designed to supplement state pension income and provide employees with certain benefits, such as:
- Tax advantages: Reduction in taxable income and tax-deferred retirement fund growth
- Employer matching: Mandatory and optional co-contributions
- Financial security: Regular income streams or a lump sum payment upon retirement
- Portability: Transferable between jobs and companies
- Additional coverage: Disability benefits, survivor coverage, and other
While bAV contributions are tax-advantaged in Germany, the IRS does not automatically extend the same treatment.
Withdrawals may be fully taxable in the US, depending on how the US-Germany tax treaty applies to your circumstances. Planning ahead with a cross-border tax adviser is crucial to avoid double taxation or unexpected liabilities.
Types of bAV Pension Schemes
Depending on their employer, individuals (including US expats) may be presented with one of the five types of bAV:
- Direct insurance (Direktversicherung): The employer takes out a life insurance policy that pays out upon retirement.
- Direct grant (Direktzusage): The employer commits to paying a future pension directly.
- Support fund (Unterstützungskasse): Larger companies establish their own pension funds to provide retirement benefits.
- Pension company (Pensionskasse): Contributions are directed to a specialised pension provider that manages payouts.
- Pension fund (Pensionsfonds): Employer establishes funds that invest in stocks and other assets to grow retirement savings.
How Do bAV Contributions Work?
The bAV system is funded through both employer and employee contributions, also known as:
- Deferred compensation
- Contribution matching
Deferred Compensation
As a US expat employed in Germany, you may request that your employer allocate a portion of your salary to a bAV scheme. Under German law, you may contribute up to 8% of your gross salary to the bAV account with a maximum annual limit of €7,728 (or €644 per month).
Within the bAV scheme, the first 4% of your deferred compensation is not subject to tax until withdrawal and is exempt from social security contributions, as it is deducted from your gross salary before the mandatory social security contributions are made. The next 4% remains tax-deferred but is subject to social security payments.
Contribution Matching
Under the BRSG (Occupational Pension Strengthening Act) introduced on 1 January 2018, employers are legally required to match a minimum of 15% of the employees’ bAV contributions.
To attract and retain talent, many companies opt to contribute more—from 50% to 100% of employee contributions—depending on their internal policies and employee benefits packages.
While bAV contributions may offer tax advantages under German law, US persons (citizens and green card holders) must carefully report them under FATCA and FBAR rules.
Employer contributions may be treated as taxable income by the IRS, and the entire account may be considered a foreign trust or pension under US tax law—potentially triggering complex reporting and dual taxation issues. Consultation with a cross-border tax adviser is strongly recommended.
What Are the Key Differences Between 401(k) and bAV?
Both bAV and traditional 401(k) offer immediate tax advantages by reducing taxable income and deferring income tax until you start making withdrawals. However, they differ in several key aspects. It is crucial for US expats to fully understand these differences to avoid unexpected tax liabilities, penalties, or gaps in long-term planning.
Social Security
Contributing to a bAV reduces your taxable income, which provides short-term financial benefits. However, it also lowers your contributions to Germany’s state pension system – Gesetzliche Rentenversicherung.
Both you and your employer contribute 9.3% of your income to the state pension, but these contributions are based on your income after bAV deductions from your gross salary.
This effectively reduces the total annual state pension contributions (approximately €900 less for those earning €60,000 annually). Over time, this could result in tens of thousands of euros in lost state pension entitlements by retirement age – currently 67.
In contrast, 401(k) contributions do not impact US Social Security benefits. While contributions to a traditional 401(k) are tax-deferred, they remain subject to Social Security and Medicare taxes (6.2% + 1.45%), meaning your full earnings are credited toward future benefits.
Withdrawal Rules
Although both plans supplement retirement income, their withdrawal rules differ significantly:
| Factor | bAV | Traditional 401(k) |
|---|---|---|
| Penalty-free withdrawal age | Retirement age (67). | 59 ½. |
| Tax | Personal income tax rate. | Personal income tax rate. |
| Early withdrawal penalty | 0.3% penalty for each month before the retirement age. | 10% penalty alongside income taxes on the withdrawn amount. |
| Early, penalty-free access | At 65, with 45 years of contributions. | Several (disability, medical, terminal illness, etc.). |
| Delayed retirement benefit | 6% annual growth on the entire fund (0.5% for each additional month the funds remain untouched). | None. |
| Withdrawal options | Monthly annuity, sometimes lump sum (varies by scheme). | Full or partial lump-sum, monthly annuities, rollover. |
| Mandatory withdrawal age | None | 73 |
| Loans | Unavailable | Up to 50% of the account balance or $50,000 -whichever is less. |
Note: Not all bAV providers allow lump-sum withdrawals – some offer only annuities, depending on scheme type.
Additionally, US expats who retain UK pensions abroad should also consider potential UK inheritance tax (IHT) exposure. Depending on residency and domicile status, these pensions could form part of their taxable estate unless structured appropriately.
Investment Options and Growth Potential
Both retirement plans offer tax-deferred investment growth, but 401(k) plans provide much higher growth potential and investment flexibility than bAVs, which typically prioritise stability and security.
The most notable difference affecting the growth potential of the two plans is the variety of available investment options.
401(k)s may be invested in a range of assets, such as mutual funds, ETFs, index funds, stocks, and bonds, whereas bAVs are typically invested in government bonds.
As a result, 401(k)s generally experience an annual growth of 5–8%, while bAV returns tend to be much lower, averaging around 2% and rarely exceeding 3%.
Over a 20-year period, accounting for compounded growth, your €200,000/$200,000 pension fund could grow to:
- bAV: €290,000–360,000
- 401(k): $530,000–930,000
One advantage of the bAV pension scheme over 401(k) is the guaranteed protection it offers to the invested funds. German pension providers are legally required to provide an 80% guarantee to limit potential losses.
While 401(k)s have greater growth potential, bAVs offer downside protection, which may be more suitable for risk-averse investors.
Can US Expats Apply for a bAV?
Yes, US expats living and working in Germany can apply for a bAV as long as they’re employed by a company offering a bAV scheme. The application is straightforward and typically involves the following steps:
- Confirm that your company offers a bAV.
- Select one of the five available bAV pension types. If you are unsure or aren’t confident in making the decision yourself, consult a pension adviser.
- Determine monthly contributions (yours and your employers) that align with your long-term goals and current financial situation. Check with your employer if the bAV allows for flexible contributions so that you can adjust them according to your financial circumstances.
- Sign the contract.
US expats must contribute to the pension fund for at least five years to qualify for bAV pension benefits.
US expats should consult a tax adviser to determine whether their bAV structure qualifies for US tax deferral under IRC Section 402(b).
Some bAV arrangements may also require annual foreign account reporting via FBAR (FinCEN Form 114) or FATCA reporting (Form 8938), depending on account structure and value.
What Are the Alternative Pension Options for US Expats in Germany?
Aside from contributing to a bAV pension fund, US expats planning on retiring in Germany can also invest in:
- Riester pensions: This is a state-subsidised annuity where the government provides annual contributions. Individuals must invest a minimum of 4% of their gross salary, up to €2,100 per year. Withdrawals are subject to income tax, and contracts must have a minimum term of 12 years. Riester pensions may not be advantageous for US expats due to potential exposure to Passive Foreign Investment Companies (PFICs), which carry punitive tax treatment under US law. Additionally, complex annual reporting requirements – such as Form 8621 – may apply. Consult a cross-border tax adviser before enrolling.
- Rürup pensions: They’re designed for self-employed professionals and high earners, allowing tax-deductible contributions of up to €29,344 per year (€58,688 for couples). Additional contributions are permitted but not tax-deductible. A minimum contract duration of five years is required.
- International pensions: They’re tailored for expats with cross-border careers, providing currency flexibility, global investment opportunities, and potentially tax-efficient retirement savings based on jurisdictional regulations.
Can US Expats Keep Their 401(k) While Living in Germany?
US expats can retain their 401(k) accounts while residing in Germany, as the IRS does not require account holders to liquidate their plans upon relocating abroad. However, they cannot continue contributing to a 401(k) unless employed by a US company sponsoring a 401(k) plan.
If US expats wish to continue growing their retirement savings while working and residing in Germany, they may roll over their 401(k) into an IRA (Individual Retirement Account).
Can You Transfer Your 401(k) to a Different Pension Fund Abroad?
Under US tax law, transferring a 401(k) to a foreign pension fund is not considered a qualified rollover. While such a transfer is technically possible, it is not advisable. The IRS treats it as an early withdrawal, resulting in US tax liability and a potential 10% penalty.
Should You Roll Over Your 401(k) to an IRA Before Moving
If you’re planning to move from the US to Germany, one of the most strategic retirement planning decisions you can make is whether to roll over your 401(k) into an IRA before relocating.
While you’re not required to do so, many US expats find it beneficial for the following reasons:
- Greater investment flexibility.
- Simplified account management.
- Improved estate planning options.
- Better tax planning opportunities.
Greater Investment Flexibility
Traditional 401(k) plans typically offer a limited menu of employer-approved investment options.
By rolling your funds into an IRA, particularly a self-directed one, you gain access to a much wider array of investments, including international funds that may better align with your new life abroad.
Simplified Account Management
Maintaining access to a 401(k) from outside the US can be cumbersome. Some US based providers restrict service or communication with clients living overseas. An IRA may offer more flexibility and a provider familiar with expat clients.
Improved Estate Planning Options
IRAs typically offer more control over beneficiary designations and distribution strategies, which can be important when considering cross-border inheritance laws and tax rules – particularly if you have ties to more than one jurisdiction.
Better Tax Planning Opportunities
Rolling into a traditional IRA keeps your funds tax-deferred and avoids triggering US tax on the rollover. You’ll also have the option to perform partial Roth conversions over time, which may reduce your long-term tax liability, especially if you anticipate lower income (and a lower tax bracket) in the early years of retirement abroad.
Note: Rolling a 401(k) into an IRA before moving abroad helps you avoid complications with US custodians who may refuse to maintain or service new IRA accounts for non-residents. It’s often easier to set up and complete the rollover while you are still physically present in the United States.
A qualified cross-border financial adviser can help you assess whether an IRA rollover makes sense based on your age, current tax situation, and long-term residency plans.
At Titan Wealth International, our specialists can walk you through the rollover process and identify whether a traditional IRA, Roth IRA, or international SIPP is better suited to your global retirement strategy.
Key Takeaway
In this article, we’ve explained that while there’s no direct 401(k) equivalent in Germany, US expats employed in the country may enrol in a German workplace pension scheme – Betriebliche Altersvorsorge (bAV).
We’ve outlined the key differences between 401(k) and bAV, from withdrawal rules and retirement age to available investment options.
Finally, we explained how US expats may apply for a bAV and outlined alternative options for those seeking to further supplement their retirement income in Germany, or rollover their 401K.
At Titan Wealth International, our pension specialists can assist you in making the best retirement decisions by evaluating your financial situation, comparing available retirement plans, and guiding you through the application process to ensure you maximise your long-term benefits while living in Germany as an expat.
