Living and working as a self-employed person in Germany, whether in vibrant Berlin, cosmopolitan Munich, financial Frankfurt, historic Cologne, or industrial Stuttgart, is an adventure full of opportunities. However, amidst managing your business and your life, have you stopped to think about your retirement? For many Spanish-speaking self-employed individuals, private retirement is a topic that raises doubts and concerns, especially when the state pension does not seem sufficient. Here we explain how the Rürup pension can be your great ally.
Why Retirement is Different for Self-Employed in Germany?
The German pension system, the Deutsche Rentenversicherung, is primarily designed for salaried employees who contribute mandatorily throughout their working life. As a self-employed person, you are likely not contributing to this system in the same way, or your contributions may be voluntary and not guarantee the desired standard of living in the future. This means that the responsibility for your financial security in old age largely falls on your own shoulders.
Imagine enjoying your retirement peacefully in Leipzig, Hamburg, or Düsseldorf without economic worries. To achieve this, it is essential to take control of your private retirement planning starting today. This is where the Rürup pension, also known as Basisrente (basic pension), comes in as a particularly attractive option for you.
The Rürup Pension: Your Tax Ally for Retirement
What is the Rürup Pension and How Does it Work?
The Rürup pension is a private pension plan subsidized by the German state, specifically designed for self-employed individuals, freelancers, and high-income earners who wish to supplement their pension or do not contribute to the public system. It is a life insurance contract that guarantees a monthly income for life from the moment of your retirement.
Tax Deductions: One of its greatest advantages is the possibility of deducting a significant part of your contributions from taxes each year.
Lifetime Income: Unlike other products, the Rürup pension is paid exclusively as a lifetime income, meaning you will receive income until the end of your life, with no possibility of withdrawing the capital in a single payment.
Non-Transferable and Non-attachable: The capital accumulated in the Rürup pension is non-transferable and non-attachable, providing great security in case of insolvency. However, it is important to know that, in general, it is not inheritable, except for exceptions such as the possibility of securing an income for the spouse or children at an additional cost.
Key Tax Advantages of the Rürup Pension
The Rürup pension stands out for its tax benefits, which can lead to considerable savings on your annual tax returns. The German state encourages private provision through attractive deductions:
Deduction of Contributions: From the year 2023, you can deduct 100% of your annual contributions to the Rürup pension as special expenses (Sonderausgaben) on your tax return. This applies up to a maximum limit that is adjusted annually. For the year 2024, this limit is 27,566 euros for singles and 55,132 euros for married couples filing jointly. This deduction percentage will remain in the future, meaning the Rürup pension tax deduction 2026 and subsequent years will also be 100% on the maximum allowed contributions.
Reduction of Current Tax Burden: By deducting your contributions, you reduce your current taxable income, which translates into lower taxes to pay each year.
Taxation in Retirement: When you retire and start receiving your Rürup income, it will be taxed as income. However, it is likely that your tax rate in retirement will be lower than during your active working life, meaning the tax burden will be proportionally lower. The percentage of taxation on retirement income will depend on the year in which the payment begins; for example, if you start receiving it in 2040, a percentage will be taxable.
Rürup vs. Riester: Which is the Best Option for You?
When discussing private retirement in Germany, the comparison between the Rürup pension and the Riester pension often arises. Although both are forms of subsidized private provision, they are designed for different profiles:
Riester Pension: It is primarily aimed at salaried employees (and their spouses) who contribute mandatorily to the Deutsche Rentenversicherung, civil servants, and certain professions. It offers direct subsidies and tax benefits in the form of deductions. Payments are taxed less in retirement.
Rürup Pension: As we have seen, it is ideal for self-employed individuals, freelancers, and high-income earners looking to optimize their current tax burden. Its main advantage is the high tax deductions on contributions.
In summary, if you are self-employed, the Rürup pension is, in most cases, the most suitable option for you due to its powerful tax deduction capacity. While the Riester may be attractive for employees, the Rürup offers more direct tax benefits for self-employed workers.
Important Considerations and Next Steps
Planning your retirement is one of the most important financial decisions of your life. The Rürup pension offers you an excellent tool to build a solid future, but it is crucial to analyze your personal situation, your income, and your long-term goals. It is not just about saving, but about doing it intelligently and tax-efficiently.
As Head of a Service Center at BarmeniaGothaer and advisor at BarmeniaGothaer, at Finanzen Campuzano by BarmeniaGothaer I understand the particularities of the German system and the needs of the Spanish-speaking community. My team and I are here to guide you through this process, clarify all your doubts about how the Rürup pension works, and help you design a retirement strategy that fits your expectations.
Do not leave your future to chance. Take control of your retirement today.
Contact us for a personalized consultation without obligation!
Elvis Campuzano
Head of a Service Center at BarmeniaGothaer
Finanzen Campuzano by BarmeniaGothaer
Phone: 0172 2638910
Web: finanzencampuzano.de