Relocating to Germany for dual-citizenship couples with U.S. retirement assets

This summary outlines the most critical tax and estate planning considerations for a couple holding U.S. and German citizenship who are relocating to Germany with U.S. retirement assets.

Income Taxation: The Core Principles

• Dual Tax Obligation: As a dual citizen, you will be subject to taxation in both countries. Germany will tax you based on your residency, and the U.S. will tax you based on your citizenship.  

• Germany is Your Tax Home: The U.S.-Germany Income Tax Treaty's "tie-breaker" rules will establish Germany as your country of residence for tax purposes. This gives Germany the primary right to tax most of your income.  

• The U.S. "Saving Clause": This is a critical concept. The treaty allows the U.S. to continue taxing you on your worldwide income simply because you are a U.S. citizen. The primary method to avoid double taxation on most retirement income is not exemption, but claiming the U.S. Foreign Tax Credit (FTC) for taxes paid to Germany.  

How Your U.S. Retirement Accounts Will Be Taxed

• CRITICAL: The 2025 German Tax Law Change: This is the most significant financial factor for your move. Effective January 1, 2025, Germany taxes the entire distribution from your traditional 401(k)s and IRAs (both contributions and growth). This replaces the old, more favorable rule where only the earnings were taxed.  

• The Roth Advantage (with a catch): Distributions from Roth 401(k)s and Roth IRAs will continue to receive better treatment in Germany; only the growth/earnings portion will be taxed. However, because qualified Roth distributions are tax-free in the U.S., you will have no U.S. tax liability. This means you cannot use the Foreign Tax Credit to offset the German tax paid on the Roth earnings, making it a final, unrecoverable cost.  

• U.S. Social Security (A Major Exception): Your U.S. Social Security benefits are a key exception to the Saving Clause. They will be taxable only in Germany and will be exempt from U.S. income tax once you are a German resident.  

Estate & Inheritance Tax: A Significant Benefit

• U.S. Retirement Accounts Shielded from U.S. Estate Tax: The U.S.-Germany Estate and Gift Tax Treaty is highly advantageous for you. By establishing your domicile in Germany, the exclusive right to tax your U.S.-based retirement accounts (401(k)s, IRAs) at death is granted to Germany. This means these assets will be protected from U.S. federal estate tax.  

• German Inheritance Tax Applies: While shielded from U.S. estate tax, the value of these accounts will be subject to German inheritance tax (Erbschaftsteuer), which is levied on your beneficiaries based on their relationship to you.  

Major recent changes

• Repeal of the 3-Year Fast-Track Naturalization:

  • Status: Changed. As of October 30, 2025, Germany officially repealed the "exceptional integration" pathway that allowed naturalization after only three years.

  • Current Law: The standard residency requirement is now 5 years for almost all applicants. The 2024 reform that shortened it from 8 to 5 years remains in effect, but the 3-year "turbo" option is no longer available for new applications.

• Dual Citizenship Standardized:

  • Status: The Citizenship Modernization Act (StAG §10) is fully active. Germany now permits dual citizenship as the default for all naturalizations. Expats no longer need to renounce their original nationality to become German.

• Updated Financial Thresholds (2026):

  • Health Insurance: The income threshold for mandatory public health insurance (GKV) has risen to €77,400 annually (up from ~€69,300 in 2024).

  • Mini-Jobs: The monthly limit for "Mini-jobs" (marginal employment) is €538 in 2026. This affects how much a non-working spouse can earn before they must pay for their own health insurance rather than being covered by their partner's "Family Insurance."

• Digital Residence Permits (OZG): Major cities like Berlin, Munich, Hamburg, and Stuttgart have transitioned to fully digital application processes for residence permits under the Online Access Act. Couples can often bypass the "Bürgeramt" queues for certain renewals.

• The "Chancenkarte" (Opportunity Card): If one partner does not yet have a job, they should look into the 2026 points-based Opportunity Card. It allows for a 12-month job-seeking stay, which is a safer bridge than a standard tourist visa.

• Tax Class VI Caution: Couples where both partners work are initially assigned to Tax Class IV/IV. They should proactively switch to Class III/V if there is a significant income disparity to maximize monthly take-home pay, though this is reconciled at year-end.

• US-Expat Specifics (FEIE 2026): For US-German dual citizens, the Foreign Earned Income Exclusion (FEIE) limit for the 2025 tax year (filed in 2026) is $132,900.

Top Strategic Recommendations

1. Urgently Analyze a Roth Conversion: Given the 2025 German tax law change, your most time-sensitive action is to analyze converting some traditional 401(k)/IRA funds to Roth accounts before you move. This would involve paying U.S. tax on the conversion now to secure more favorable tax treatment in Germany later.

2. Verify Your U.S. Financial Institutions: Before relocating, contact your U.S. brokerage firms and IRA custodians. Many will not service clients with foreign addresses. You may need to transfer your accounts to an expat-friendly institution while still in the U.S..  

3. Prepare for Perpetual Dual Filing: You will have a lifelong obligation to file annual tax returns in both countries. In the U.S., this includes Form 1040 and potentially informational returns like the FBAR (FinCEN Form 114) and FATCA (Form 8938).  

Your Move to Germany: A Guide to Protecting Your U.S. Retirement Savings

Navigating the tax rules of two countries at once can feel overwhelming. You're right to be cautious—the laws are complex, and without a clear plan, you could face unexpected taxes and administrative headaches.

That's why we've created Investing from Germany - Financial planning for US citizens moving to or living in Germany in 2026