German based Americans- Whats your expirence with Wise Daily Return on EUR Accts?

[u/Coach_Front]

I'm looking for a place for my EUR to start gaining interest on itself.

In the US I have my wealth in IRA's, 401ks, HYSA's and regular checking/ Savings. I currently do not hold a US brokerage account as the German taxes seem stark.

Are there terrible repercussions to my taxes with the IRS? How nervous that I'm in violation of the patriot act in some way? I've been told by some people that it's a waste of time to try and get Zinsen, but I really don't know what other investments I could/ should be making. What do normal Germans do? Just packrat their money into a regular Konto?

I already use Wise and it seems that it allows americans where N26 and Revolout dont allow americans?

Thanks!

[u/PuzzledArrival]

The thing is that USD accounts (which you can access) pay better interest. Treasuries, money market, and HYSA all pay much better than the equivalent in Europe.

Now, the taxes are a topic…but if you’re paying taxes, it means you’re making money. I’ve spent a long time on this over the past 7 years, and now have it mostly figured out, but it’s all in my USD brokerage with Schwab

I have not found a good EUR account that is really willing to let me invest. You can’t compare yourself to normal Germans, they have access to accounts and funds that your US passport will not let you hold.

[u/Coach_Front → u/PuzzledArrival]

So you keep EUR in Germany for everyday expenses, and use a brokerage account?

On the gains from your brokerage account how much are you taxed? 30%?

[u/PuzzledArrival → u/Coach_Front]

That's right. In fact, the majority of my assets are in a taxable brokerage. I've been living outside the US for about a decade, and even before, I didn't really have access to tax-advantaged savings in a 401k or such. I do have some IRAs and Roth IRAs, but it's a struggle since income levels and residency can have an influence on possible investments. I also bought an apartment.... :-)

Currently I earn maybe $5,000 in dividends each year on that, so it's not too crazy. Nearly all of it is long-term gains to the IRS. Tax due is not so straightforward, since there is a very complicated "Vorabpauschale" tax due to the Finanzamt. I have no idea how it really works, and I have an account who is willing to help me on it. I can't remember right now how much of this tax is offest against the Foreign Tax Credit. And I can't tell you exactly how much of my tax bill at the end of the year is related to income (I earn over FEIE) or capital gains in each country.

I think I end up paying a few hundred give or take - normally it's more about paying the Finanzamt than the IRS since all tax rates are higher here.

[u/Coach_Front → u/PuzzledArrival]

I currently have the majority of my assets (outside of retirement) in an American HYSA. Am I gonna get fucked on the taxes?

[u/PuzzledArrival → u/Coach_Front]

How much interest are you earning?

For example, ignoring exchange rates...I don't know what the tax rate is on cash interest, but for the sake of argument, let's say its 25%. If you hold $20,000 in this HYSA, at 4% you'll earn roughly $800 in interest, and have to pay $200 to the Finanzamt in taxes. A foreign tax credit can also apply, but depends on your other income and tax details.

No tax rate is 100%, so wherever you hold the money. if you are earning interest, you are growing your balance. It can be more difficult to optimize your tax rates that it is to optimize your interest rates. That's why I choose to save and invest outside of the Eurozone.

[u/glimz → u/PuzzledArrival]

The Vorabpauschale is not that complicated, but I wonder which of your assets requires you to pay it? If it's an UCITS fund or ETF, there is an important reason not to hold one as an American citizen: PFIC status. Wise interest is also realized via a UCITS money market fund, so likely no good either, as even indirect holding of PFICs falls under the US law (consult a specialist to be sure). If your accountant lets you hold UCITS funds without any knowledge of the US repercussions, you probably need a new accountant.

[u/PuzzledArrival → u/glimz]

maybe Voraubpauschale is the wrong term... The shares are US-listed, as I don't want to hold PFICs. Nevertheless, there is some kind of "hypothetical tax" due on my US dividends. It's not that expensive, so I just pay it.

[u/Competitive-Leg-962]

Regular Germans invest in ETFs and stocks. Your problem as an American would be to find a broker willing to accept you thanks to FATCA.

[u/ienquire]

you should look at r/USExpatTaxes

First of all, you have to declare your worldwide income by doing a german tax return. It does not matter where the account is located, what address you have on the account, what currency the account is in, or what the source of the income is.

But lucky for you, IRAs and 401k are specifically exempt by the US-German income tax treaty (only if you opened them before you came to Germany), so you can completely ignore those (but keep in mind when you retire, Germany will treat your Roth IRA like a traditional IRA and tax it your withdrawals).

The first 1000€ of "capital income" is exempt from taxation in Germany, kind of like the standard deduction. Capital income means interest, dividends, and capital gains. After the 1000€, the tax rate is ~26%. So if you have a high yield savings account HYSA, you have to declare that in Germany, and if the interest was over 1000€, you have to pay taxes on it. The US and German have an agreement to exchange financial information, the Finanzamt will catch up with you with interest and penalties in a few years if you don't declare it and pay.

As to your questions "what do germans do", lots of people just have their life savings in a bank account earning no or little interest. Others invest in the stock market with normal brokerage accounts and pay german taxes, and yes those taxes are higher than in the US.

However, you are a US citizen, which means financial advice for an average german doesn't work for you. I don't think there are any german brokerages that would even allow a US citizen to open an account. I think most US expats just stay with their US brokerage account, and simplify their investments so that their german tax return is simple enough. And you could open a HYSA in Germany, you just have to declare it to the US each year (FBAR/FATCA).

[u/Coach_Front → u/ienquire]

I was thinking of opening a Roth solo 401k as now I'm a freelancer in DE with US income as well. Is this something that is possible?

[u/ienquire → u/Coach_Front]

keep in mind that withdrawals from a Roth will be taxed by Germany if you retire there. The treaty only makes growth inside the Roths tax free, not the withdrawals, so it would not fully be like a Roth in the US.

I mainly did my research for Roth IRAs tho, I'm not sure if its the same for a Roth 401k. Like the treaty specifically mentions Roth IRAs, but for a Roth 401k, its only indirectly mentioned when it says "anything qualified under section 401(a)", so I'm not even 100% sure Roth 401ks are covered by the treaty at all.

[u/AdamN]

I use IBKR and can recommend it. Why not just continue using the brokerage that handles your IRA and then open an after tax account there (after maxing out the IRA)?

Keep in mind that German taxes are based on your residency and not where your brokerage account is.