What is 401k | What County

What is 401k

The 401(k) scheme is the private pension scheme in the United States. This enables employees to invest part of their gross salary tax-free in various categories, money market funds, bonds or shares. From the age of 55, these funds may be withdrawn again. The amount is then taxed according to the annual income, which is usually below the level during full employment at retirement age.

What is 401k
What is 401k

Benefits from a US pension plan “401(k) pension plan” are other income according to § 22 No. 5 Sentence 1 Income Tax Act (EStG). The BFH has decided that. What does this mean for taxation?

For income tax, this means:

If the taxpayer was not taxable in Germany during the savings phase, he must pay tax on the difference between the capital payment and the deposits (§ 22 No. 5 sentence 2 EStG).

If, on the other hand, he was taxable in Germany during the savings phase, he could take advantage of the tax exemptions or other subsidies of contributions listed conclusively in § 22 No. 5 sentence 2 EStG during this time and must pay tax on the full payment.

In most cases, however, variant 1 will come to fruition, because classically, the “401 (k) pension plan” pension provision is created for employees who live, work and are taxable in the USA.

In its judgment, in which it dealt with the limits of the downstream taxation of income from foreign pension schemes, the BFH emphasizes that the provisions in § 22 No. 5 Sentences 1 and 2 EStG expressly do not make it possible to use the exemption of contributions to the “401 (k) pension plan” actually granted under US tax law during the savings phase as an opportunity to tax the benefits from this pension plan downstream in Germany.

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