German Pension Options for American Expats: How to Report on Your US Taxes

According to the IRS guidance on foreign pension taxation, most Americans with German pensions can use the Foreign Tax Credit to eliminate double taxation. The US-Germany tax treaty ensures that pension contributions made during your working years generally don’t require US tax reporting. When you retire, Germany’s higher tax rates typically create enough credits to reduce your US tax bill to zero.
If you’re working in Germany and wondering how your pension fits into your US tax obligations, you’re asking exactly the right questions. Germany’s three-pillar pension system can feel overwhelming when you’re already managing dual tax requirements, but the reporting is more straightforward than you might think. With Germany’s higher tax rates compared to those in the US, your German taxes typically offset any US tax liability entirely.
This guide walks you through each type of German pension, explains precisely what you need to report to the IRS, and shows you how to avoid paying taxes twice on the same income.
Do German Pensions Need to Be Reported on US Tax Returns?
Yes, but the reporting requirements depend on which type of pension you have and when you receive income from it.
Germany’s pension system operates on three pillars, each with distinct US reporting requirements. The mandatory state pension typically requires no reporting during your contribution years. Company pensions follow US retirement plan treatment under the US-Germany tax treaty. Private pensions can trigger more complex reporting if they’re considered foreign trusts by the IRS.
The relief: During your working years in Germany, you won’t face extensive reporting for most pension contributions. The complexity increases further if you have certain private pensions with investment control, which may require filing Form 3520 and Form 8621.
What Are the Three Types of German Pension Plans?
Germany’s pension system gives expats three layers of retirement security. Each pillar serves different income levels and employment situations.
Pillar 1: State Pension (Gesetzliche Rentenversicherung or GRV)
This is Germany’s mandatory public retirement insurance. Every employee and their employer contribute through payroll deductions. Contributions are 18.6% of gross monthly wages, split equally between you and your employer, on incomes up to €96,600 in West Germany and €90,000 in East Germany.
The pension calculation uses a points system. You earn approximately one pension point for every €50,493 you contribute. Each point is currently worth €40.79 per month upon retirement. If you contribute for 30 years at an average income, you’d accumulate about 30 points, worth roughly €1,224 per month at retirement.
Pillar 2: Company Pensions (betriebliche Altersvorsorge or bAV)
These voluntary employer-sponsored plans supplement your state pension. Companies can offer direct pension promises or utilize external providers, such as life insurance companies or pension funds. Many employers make contributions on your behalf, and you can often add your own through salary conversion (deducted from gross pay before taxes).
Pillar 3: Private Pensions
Individual plans you arrange through banks or insurance providers. The two government-subsidized options are Riester (for employees) and Rürup/Basis pensions (primarily for the self-employed).
How Does Germany’s State Pension Work for US Expats?
Contributing to Germany’s state pension doesn’t create US tax reporting during your working years. No Form 3520, no PFIC reporting, no complex calculations while you’re building your pension credits.
When you retire and start receiving state pension payments, those payments become taxable income in both Germany and the US. This is where the US-Germany tax treaty becomes your best friend.
The Treaty Protection
Under the treaty, German social security payments are taxable in your country of residence. If you’re living in Germany when you receive your pension, Germany has primary taxing rights. You’ll report the income on your US tax return, but you can claim a dollar-for-dollar Foreign Tax Credit for the German taxes you paid.
Practical Example: State Pension Taxation
Klaus, a dual U.S.-German citizen, retires in Munich with a monthly state pension of €1,500 (approximately €18,000 annually, or around $19,800 USD). Germany taxes 85% of his retirement at his tax rate of 25%, resulting in €3,825 in German taxes ($4,208 USD).
Upon his return to the US, Klaus reports the full $19,800 in pension income. His US tax on this income would be approximately $2,970. He files Form 1116 to claim the $4,208 in Foreign Tax Credit, which eliminates his US tax liability and leaves him with $1,238 in excess credits to carry forward.
Result: Klaus pays zero US taxes and keeps his unused credits for up to 10 years.
What Are German Company Pension Plans (bAV)?
Company pensions can significantly boost your retirement income. The most common types include:
Direct Pension Commitments (Direktzusage)
Your employer promises to pay you a specific amount at retirement. The company manages these funds internally and remains responsible for the payments.
External Pension Plans
Your employer uses outside providers:
- Direct insurance policies
- Pension funds (Pensionskassen)
- Support funds (Unterstützungskassen)
- Direct insurance (Direktversicherung)
US Tax Treatment
Germany follows the US retirement plan treatment per the treaty for employer pensions. These plans are generally considered employer-sponsored plans under US tax law, similar to 401(k)s, though they’re foreign retirement plans.
During contribution years, there’s typically no reporting requirement beyond including them on your FBAR if the account value exceeds $10,000 (when aggregated with other foreign accounts). You don’t need to report the account balance on Form 8938 during the accumulation phase unless it exceeds standard thresholds.
When you receive distributions, you’ll report them as pension income on your US tax return and can use the Foreign Tax Credit for any German taxes paid.
Which Private German Pension Plans Should US Expats Consider?
Private pensions offer tax advantages in Germany, but the tax treatment in the US becomes more complex.
Riester Pension
Created for employees earning lower incomes, the Riester offers government subsidies. Contribution limits remain at €2,100 annually, making it most attractive for lower earners with multiple children who receive the €300 per-child allowance.
The government contributes €175 annually as a basic allowance, plus €300 for each child born after 2008 (€185 for children born before 2008).
US Reporting: Riester plans may not qualify as retirement plans under US tax law, potentially triggering foreign trust reporting requirements.
Rürup Pension (Basis Pension)
Designed for self-employed individuals, freelancers, and high earners, the Rürup offers significant tax benefits in Germany. You can contribute up to €29,344 annually (€58,688 for married couples filing jointly), with 100% of contributions now fully tax-deductible in Germany.
This is a significant update: Rürup contributions are now 100% tax-deductible, increased from 86% in prior years.
Key Features:
- Cannot be canceled, only paused
- Not inheritable (though some plans allow survivor benefits)
- Lifetime pension payments only (no lump sum option)
- Can continue even if you leave Germany
US Tax Concerns for Private Pensions
Here’s where US tax law gets tricky. Many German private pensions don’t qualify as retirement plans under US tax regulations because they don’t meet complex qualification rules.
When Do German Pensions Trigger Form 3520 Reporting?
The IRS may classify certain German private pensions as foreign grantor trusts, especially if you have control over investment decisions within the plan.
The Control Test
If you can make decisions about the actual investments in your pension (not just contribution amounts, but which funds or stocks to invest in), the IRS considers this “control” and may classify your pension as a foreign grantor trust.
When Form 3520 Is Required
You must file Form 3520 if you:
- Transfer money to a foreign trust (annual contributions to a private pension you control)
- Receive distributions from a foreign trust
- Are treated as the owner of a foreign trust under US grantor trust rules
The Penalty Risk
Failure to file Form 3520 when required results in substantial penalties: the greater of $10,000 or 35% of distributions received, or 5% of the trust’s value if you’re deemed the owner.
German state pensions (GRV) and most company pensions (bAV) don’t trigger Form 3520 because you don’t control the investment decisions. The requirement primarily applies to self-directed private pensions where you choose specific investments.
PFIC Reporting Requirements
If your pension invests in foreign mutual funds or similar investments (which most do), those underlying investments may be Passive Foreign Investment Companies (PFICs) requiring Form 8621 reporting. This creates another layer of compliance for private pensions classified as foreign trusts.
The good news is that Revenue Procedure 2020-17 provides relief from certain trust reporting requirements for some foreign retirement plans; however, German private pensions don’t have specific exemptions like Canadian RRSPs do.
How Can You Avoid Double Taxation on German Pension Income?
The US-Germany tax treaty and the Foreign Tax Credit work together to prevent you from being taxed twice.
Foreign Tax Credit Strategy
Germany’s tax rates are generally higher than those in the US, making the Foreign Tax Credit your best defense against double taxation. When you receive pension income, you’ll pay German taxes first, then claim those taxes as credits on your US return using Form 1116.
Practical Example: Rürup Pension Distribution
Maria is self-employed in Berlin and contributed the maximum €29,344 to her Rürup pension, deducting 100% from her German taxes. Years later, she retires and receives €35,000 annually from her Rürup pension.
When she retires, 85% of her pension is taxable in Germany (the taxable portion increases each year until reaching 100% in 2040). Germany taxes €29,750 at its 28% rate, resulting in €8,330 in German taxes.
Upon her return to the US, Maria reports the full $38,500 (€35,000 converted) in pension income. Her US tax would be approximately $6,160. She files Form 1116 and claims the $9,163 Foreign Tax Credit (€8,330 converted), which eliminates her US tax liability and carries forward $3,003 in unused credits.
The Math That Matters
German taxes paid: €8,330 ($9,163) US taxes owed: $6,160 Foreign Tax Credit applied: $6,160 Result: $0 owed to the IRS, plus $3,003 in credits carried forward for up to 10 years.
What’s the Best Tax Strategy for Americans Living in Germany?
For most Americans living in Germany, the Foreign Tax Credit outperforms the Foreign Earned Income Exclusion.
Why the Foreign Tax Credit Works Better in Germany
Germany’s progressive tax rates range from 0% to 45%, with most middle- and high-income earners paying between 30% and 45% in combined income taxes. US federal tax rates max out at 37%. This means you’re almost always paying more in German taxes than you would owe in US taxes on the same income.
When to Use the Foreign Tax Credit:
- You’re employed or self-employed in Germany
- Your German tax rate exceeds 20%
- You want to maximize retirement contributions
- You earn above the FEIE limit ($130,000 for the 2025 tax year)
When to Consider FEIE:
- You earn under $130,000 annually
- You have minimal German taxes (rare in Germany)
- You want a simpler tax filing
Strategic Combination
Some expats combine both strategies. Our detailed FEIE vs FTC comparison explains how to use FEIE for earned income up to $130,000, then apply the Foreign Tax Credit for income above that threshold or for passive income (rental properties, investments) that doesn’t qualify for FEIE.
Example: Jürgen earns $95,000 working in Frankfurt and receives $25,000 in rental income from a property in the US. He could exclude his entire $95,000 salary using FEIE and use the Foreign Tax Credit for his rental income. However, because Germany’s tax rates are high, he’d likely save more by using the Foreign Tax Credit on all his income, especially if he’s paying 30% or more in German taxes.
What Other Reporting Requirements Apply to German Pensions?
Beyond income tax returns and potential Form 3520 filing, German pensions trigger these reporting requirements:
FBAR (FinCEN Form 114)
If your German pension accounts exceed $10,000 at any point during the year (when combined with all your other foreign accounts), you must file an FBAR by April 15 (automatically extended to October 15).
FATCA (Form 8938)
If your total foreign assets, including pension accounts, exceed the filing thresholds based on your filing status and location, you must file Form 8938 with your tax return. For expats living abroad, thresholds are $200,000 on the last day of the year or $300,000 at any time during the year (for single filers).
We’re Here to Help You Get It Right
Whether you’re contributing to a Rürup pension as a freelancer, receiving state pension payments in retirement, or wondering if your private pension triggers Form 3520, we have the comprehensive expertise to handle your situation correctly.
No matter how complex your German pension arrangements may be, you’ll have peace of mind knowing that your taxes were done right.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.
This article is for informational purposes only and does not constitute tax or legal advice. Every situation is unique. Consult with a qualified tax professional about your specific circumstances.
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