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.  

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 this comprehensive report, Strategic Tax & Estate Planning for U.S.-German Dual Citizens Relocating to Germany. Think of it as your personal roadmap, designed to guide you through every step of the financial transition. It translates confusing tax jargon into plain English and provides actionable advice to help you make informed decisions. Available here as a 36-page PDF for $39.99