Converting the pension is a good idea
Series: Riester pensionProductive with children, just not for the comfortable
Monday July 16, 2018 Part 1
For whom is Riestern worthwhile?
Tuesday, July 17th, 2018 Part 2
What you should definitely pay attention to with the Riestern
Wednesday July 18th, 2018 part 3
Ownership thanks to residential riests: advantages and disadvantages
Thursday 07/19/2018 Part 4
Instead of a pension, prefer an apartment: convert Riester pension
Friday July 20th, 2018 Part 5
Riester pension: what could alternatives look like?
Tuesday July 24th, 2018 Part 6
Divorce, job loss or abroad: the effects on Riestern
FAQs - Frequently asked questions about the Riestern and Wohnriestern
Who can even take advantage of the Riester subsidy?
Anyone who has statutory pension insurance is deemed to be directly eligible for funding. On the one hand, this applies to all dependent employees, regardless of whether they work full-time or part-time or are still in training. Civil servants, professional soldiers, judges and priests are also allowed to join, as are the self-employed who pay into the statutory pension insurance. These include, for example, artists or journalists who are insured through the artists' social insurance scheme.
Indirectly eligible are people who themselves would not actually be entitled to Riester funding, but who can "co-Riester" through their eligible partner. This applies, for example, to spouses and registered life partners who take care of the household or work independently and are not legally insured. Social assistance recipients are also entitled to allowances through their partner. In order to be able to take advantage of the funding, those indirectly eligible for funding must pay a minimum annual contribution of 60 euros to their Riester contract. They receive allowances in the same order of magnitude as their partner. This means that if your partner only receives half of the allowances, this also applies to you - even if you have paid the basic amount of 60 euros in full.
Can you pay in more than 2,100 euros a year?
Yes. However, a maximum of 2,100 euros will be funded. Some experts recommend over-saving a Riester contract in order to save on the withholding tax. Income from Riester pensions is usually taxed at the personal tax rate. The following applies to fund savings plans: If a contract has run for twelve years and the saver is at least 62 years old at the start of the payout phase, half of the income is even tax-free. Apart from such tax tricks, oversaving a Riester contract is hardly worthwhile, as other forms of investment bring higher returns.
What types of Riester pension are there?
There are three different forms: classic pension insurance with guaranteed interest, bank savings plans or fund savings plans. With a pension insurance, customers receive a guaranteed minimum pension, but can receive more if the interest rate trend is favorable. This type of Riester pension is only worthwhile for people who can pay into their contract over a long period of time, as the closing costs are relatively high. Bank savings plans have low closing costs and are comparatively easy to terminate. However, the interest rates are also quite low. With a fund savings plan, investors benefit from price gains on the stock exchanges.
Is Riester worth it despite low interest rates?
With many Riester products, savers get less in times of low interest rates. However: This of course also applies to non-Riester-funded bank savings plans and pension insurance. If you want to achieve a higher interest rate, you generally have to opt for a riskier product. Riester contracts are generally not designed to generate large returns, but rather to provide secure old-age provision. That means: You definitely get out what you have paid in, and you also benefit from the state allowances and tax savings. These do not depend on the interest rate.
Is Riester worthwhile for low-wage earners and ALG2 recipients?
Yes, Riester can also be worthwhile for low-wage earners. The reason for this is a change in the law that recently came into force: Since 2018, Riester savers who receive basic security in old age have been able to keep a pension of up to EUR 200 per month free of credit. This also makes Riester attractive for low-wage earners. Her Riester pension used to be offset against her basic state security. Anyone who had less than the basic security with the statutory pension plus Riester had saved the money for free.
Even those who are unemployed can continue to save on the Riester pension. The prerequisite for this is that you are registered as jobseeker with the employment agency. In the first year of unemployment, the personal contribution that must be paid into the contract is based on the gross income in the previous year. In the following year, the unemployment benefit is used. Those who receive Hartz IV only have to pay 60 euros annually into the contract to receive the full allowances. If you can't do that either, you can temporarily suspend your contract. Then he pays no contributions, but neither does he receive any allowances.
One advantage of the Riester pension: it is seizure-proof. The state cannot force the unemployed to terminate their contract. But: If you decide of your own free will, for example because you want to access the saved money, this is considered "harmful" use in pension jargon and you have to reimburse any allowances and tax advantages.
What is a harmful use? What are the consequences?
Harmful use occurs when savers terminate their contract or withdraw the capital saved before retirement - for example to buy a car. Only the purchase of owner-occupied property for old-age provision is permitted under certain conditions. If this property is then sold again and the capital is not reinvested in a new property or a Riester contract, there is also a harmful use. Another reason for a harmful use can be that savers move permanently to non-EU countries or that in the event of death the heirs have the capital from the Riester contract paid out. With a Riester contract, all allowances and tax benefits received must be repaid in the event of harmful use. Separate rules apply again to residents.
What are the advantages and disadvantages of letting go of your contract?
Anyone who lets their contract rest no longer pays in contributions and no longer receives any allowances. The saved capital remains tied up. The advantage is that - unlike when the Riester contract is terminated - the state funding already received does not have to be repaid. With many providers, you can resume premium payments at a later point in time, for example when a financial bottleneck has been overcome. You can also leave your contract on hold for a long time. The capital already saved will then continue to earn interest; the pension entitlements are of course lower than originally agreed with the provider. In order to terminate the contract, a written notification to the Riester provider is usually sufficient.
What do you have to consider if your own status changes?
Riester is generally a comparatively inflexible pension scheme. Major changes in life planning can therefore be associated with financial disadvantages:
Independence: Anyone who switches to self-employment threatens to lose their eligibility for funding. However, that depends heavily on the new job: Anyone who pays into the artist's social security fund or is otherwise compulsorily insured in the statutory pension scheme can continue to riest. For other self-employed people, the Rürup pension is the equivalent. If you already have a Riester contract and then become self-employed, the contract is usually closed. That means, you no longer pay into the contract, it rests. This is usually cheaper than terminating the contract, because in the event of termination, all allowances and tax benefits received must be repaid.
Stay abroad: Anyone who is posted abroad by their employer for a limited period of time will continue to receive the funding - regardless of whether they work in the EU or in a more distant country. Riester savers who go abroad forever no longer receive any further state funding. Whether or not they have to repay the allowances and tax benefits they have already received depends on their new place of residence. If you move within the EU or to Iceland, Norway and Liechtenstein, you can keep the funding. If it goes to countries outside the European Economic Area, the funding must be repaid. The repayment can be deferred upon application to the Central Allowance Office for Retirement Assets. This can make sense especially if you want to work again in Germany before retirement: In this case, the closed Riester contract can be resumed and saved further. Anyone who concludes a resident contract and only goes abroad for a certain period of time also remains eligible for funding - provided that they move abroad for professional reasons and return before retirement.
Further information: Riester pension abroad - keep funding
Death: If the Riester saver dies in the savings phase, the spouse can transfer the credit from the Riester contract to their own Riester contract. If he doesn't have his own, he can still get one up until the end of the year of his death. With some Riester pension insurances, there is an alternative option to convert the capital into a widow's or widower's pension. According to the Federation of Insureds, conversion into an orphan's pension is only possible in rare cases. If the heirs have the capital from the Riester contract paid out, this is considered a "harmful" use. Then allowances and tax benefits have to be paid back.
If the Riester saver dies during the payment phase, the pension guarantee period agreed in the contract decides how long the pension will be paid to the partner in question. Further information from the Association of Insureds.
Divorce: If both partners of a childless couple are directly eligible for funding and have a contract, usually nothing changes. Both continue their contracts as usual.
However, it should be noted that in the event of a divorce, the pension equalization takes effect. This means that every pension entitlement that arose during the marriage is halved and 50 percent is credited to both partners. This also applies if a partner did not have a Riester contract before the divorce. With the divorce, he receives a Riester pension account to which half of the pension entitlements of his ex-partner flow after retirement.
Also, be careful with the funding status: If one of the spouses was only indirectly eligible for funding, they will lose this indirect funding entitlement after the divorce. In this case it is usually better for him not to terminate his Riester contract, but to let it rest. Otherwise, allowances and tax benefits received must be repaid.
If there are children in the marriage, the person who also receives the child benefit is entitled to the child allowance. If something changes in the child benefit as a result of the divorce, this should be communicated to the Riester provider as soon as possible.
How does a change in the status of the partner directly entitled to a riesthood affect the indirectly entitled partner?
Anyone who does not have direct Riester funding entitlement can also conclude a Riester contract via indirect funding entitlement. This is possible if the spouse belongs to the group of people directly eligible for funding and has concluded a Riester contract. In order to be able to "co-cleric", the indirectly eligible partner must pay a contribution of at least 60 euros into his contract. However, according to the consumer portal "Finanztip", how much allowances he receives always depends on who is directly entitled to Riester savers. If the directly entitled saver is only entitled to 70 percent of the full state subsidy, the indirectly entitled saver also only receives 70 percent - even if he has paid the full 60 euros into his contract. If the directly authorized partner loses his authorization - for example, because he becomes self-employed, the indirectly authorized partner can no longer riot. Inquiries are also necessary if the partner who is directly entitled to support goes on parental leave.
Is it worthwhile for both spouses to take out their own Riester pension?
It depends. Assume: In a couple with two children, one partner earns a lot (over 70,000 euros) and one partner earns little (less than 30,000 euros). Then the low-income partner can benefit from child allowances. The partner with the high income benefits from the tax savings. Under these conditions, a separate Riester pension can be worthwhile for both spouses who are directly eligible for funding. If, on the other hand, both have a rather low income, it can make more sense for only one partner to take out a Riester pension and benefit from child allowances, and the other to benefit more from another form of investment. Since such scenarios should always be calculated individually, it is advisable to ask one or two independent financial advisers for advice.
In the case of new contracts, the fees for signing, distribution and administration are only calculated for the first 5 years. Can they be collected continuously for old contracts?
For the Riester pension, it used to be the case that the fees for conclusion and administration had to be paid off in the first ten years after the contract was signed. That has changed in the meantime. Since 2005, the fees for new contracts have to be paid off within the first five years. Riester savers were placed worse off by this new regulation. Because now higher costs are deducted from your savings contributions in the first few years and less money flows into the system. This means that the system grows more slowly. The ten-year rule continues to apply to old contracts.
How does Riester work when I am then a pensioner?
Normally, the payment of the Riester pension begins with the start of the statutory pension. To make sure that the payment starts on time, inform your Riester provider in good time when you will retire. In some cases, it is even possible to start the Riester payment before you officially retire. For contracts that were concluded before 2012, this goes from the age of 60, otherwise from the 62nd. There are various options during the payout phase. Normally, the saved credit should bring a lifelong pension. However, in order to get more out than what was previously deposited, the saver has to get very old.
Anyone who does not expect to get very old (for example because of a serious illness) or who needs money immediately after retirement can take a partial amount of a maximum of 30 percent early from the Riester contract. This is then not considered "harmful" use. It should be noted, however, that the amount withdrawn must be fully taxed. So if you take a large amount of money out of the Riester contract in one fell swoop, this can lead to a significantly higher tax burden than would otherwise be the case.
It is permitted to use the saved credit to discharge, buy or build an owner-occupied property. Age-appropriate renovation of the home is also permitted. In the case of small pensions, there is also a fourth option: Riester savers can have their pension paid out at 100 percent if their Riester pension does not exceed EUR 30.45 per month (value for 2018). You benefit from a reduced tax rate. Normally, in the event of an early, 100 percent payout, all allowances and tax refunds received would have to be repaid. This rule does not apply to such minor pensions.
How does that work with taxation? When is the tax disadvantage greater than previously received allowances?
The Riester pension is taxed at the respective personal tax rate of a pensioner, which in turn depends on the total income. The idea behind the Riester pension is that the tax rate is lower in old age than during employment. Of course, this calculation does not work if you have high income from a company pension or from renting / leasing in old age. Anyone who can foresee that they will have a similarly high income in old age or even higher income than during their working life should calculate in advance whether it is actually worth taking out a Riester pension. It can be problematic to have a partial amount of the Riester savings paid out collectively when you retire. Even then, the taxes incurred may possibly be higher than the allowances received and / or the tax savings in the payment phase. Here, too, the following applies: It is best to work out beforehand together with an independent financial advisor whether a partial payment of the capital saved actually makes sense or whether there are alternatives.
A withholding tax does not have to be paid on profits from Riester investments, such as fund savings plans. Taxation is a bit more complicated for the residential elector: There savers have to pay taxes after retirement, although they do not actually receive a Riester pension. The reason is the so-called "housing subsidy account".All personal contributions and allowances received that the saver accumulates in the course of their life are booked to this imaginary account. The saver cannot access it because the credit recorded there was put into real estate promotion. On the basis of this housing subsidy account, the tax burden of the saver is calculated after retirement. This is to prevent residential Riester savers from being better off compared to "normal" Riester savers. Residential Riester savers can decide for themselves whether they want to repay their entire tax debt at once and receive a 30 percent discount. Alternatively, the tax liability is spread over a maximum of 17 years up to the saver's 85th birthday.
What health and long-term care insurance contributions are due when the Riester pension is paid out?
According to the consumer advice center in North Rhine-Westphalia, anyone who is a pensioner with private or statutory health insurance does not have to pay any health and long-term care insurance contributions. On the other hand, voluntarily legally insured pensioners have to pay contributions. Pensioners are usually compulsorily insured if they can provide evidence of the so-called previous insurance period - that is, they had already had statutory health insurance for a certain period of time. The previous insurance period is fulfilled if you have been compulsorily insured, voluntarily insured or family insured in the statutory health insurance from the first time you took up gainful employment until you applied for a pension. Times of raising children are also taken into account. What is new is that even with the company Riester pension, there are no longer any health or long-term care insurance amounts. That was different until the end of 2017. Up to now, such contracts have almost never been worthwhile, as health and long-term care insurance contributions also had to be paid on the Riester pension - although these were already paid in the savings phase. In other words, double contributions were levied. The legislature has now improved this point.
What if I sell my Riester-subsidized house again?
So that there is no harmful use - so the technical jargon - a Riester saver has to live in his property himself when retiring. If one spouse dies, the other has to stay in the Riester-funded house. A sale without financial disadvantages is only possible if the subsidized contributions or allowances are invested in a new home within one year before giving up the owner-occupied home or within four years afterwards. This also includes the right to permanent residence in a retirement or nursing home. Otherwise a sale is deemed to be detrimental to funding. Subsequent taxation of the remaining years that have not yet been taxed takes place (up to a maximum of 85 years of age). However, if the variant with the tax discount of 30 percent was chosen, the property may not be sold for 20 years. Otherwise there will be an expensive "penalty taxation".
What can I keep if I receive a basic state pension?
Anyone who had less than the basic security with the statutory pension plus Riester had saved the money for free. That has changed now: Since 2018, Riester savers who receive basic security in old age have been able to keep a pension of up to EUR 200 per month without credit. This also makes Riester attractive for low-wage earners. In the past, the Riester pension was offset against the basic state security.
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