How should renovation costs after purchasing a house be assessed?

After purchasing a property, extensive renovation and modernisation measures are often carried out. Such expenses are actually maintenance costs and can therefore be immediately deducted as income-related expenses if the building is rented out. However, be careful: If the costs in the first three years exceed 15% of the building's purchase price, they are added to the purchase price and may only be depreciated uniformly (§ 6 para. 1 no. 1a EStG).

When calculating the 15% limit, expenses for maintenance work, i.e. for cosmetic repairs, are not included. Furthermore, expenses incurred to make the building operational are considered part of the purchase costs and should therefore not be included in the 15% limit. Additionally, expenses that lead to a significant improvement of the property are considered production costs and should also be excluded from the 15% limit.

Note: The Federal Fiscal Court has ruled that cosmetic repairs carried out in close spatial, temporal, and factual connection with other modernisation measures in the first three years after purchasing the building are included in the 15% limit and - if this limit is exceeded - are considered near-purchase production costs. This means: The costs may not be deducted in full but only through depreciation of 2% per year as income-related expenses (BFH ruling of 14.6.2016, IX R 22/15).

Maintenance work or cosmetic repairs are actually immediately deductible as maintenance expenses and are not included in the 15% limit. However, this only applies if they are carried out in isolation and independently of other modernisation measures.

If you are not careful, classic cosmetic repairs, such as painting and wallpapering, which are actually deductible in one go, will be spread over 50 years. If you want to avoid this fatal outcome, you must ensure that your expenses remain below the 15% limit in the first three years (15% of the building's purchase price). Alternatively, you can start comprehensive modernisation only after the third year.

The above-mentioned BFH case law from 2016 has led to a deterioration (BFH rulings of 14.6.2016, IX R 25/14, IX R 15/15, IX R 22/15). Previously, expenses for cosmetic repairs were at least excluded from the 15% limit. The tax authorities therefore grant protection of legitimate expectations. Upon request, it is permitted to exclude costs for cosmetic repairs from the examination if the purchase contract for the property was concluded before 1 January 2017 (BMF letter of 20.10.2017, BStBl 2017 I p. 1447).

Building purchase costs 2018: 100.000 Euro

•  Cosmetic repairs 2018:                5.000 Euro (fully deducted)
•  Renovation costs 2019:                  5.000 Euro (initially fully deducted)
•  Renovation costs 2020:                  5.100 Euro

Here, the 15% limit would be exceeded by 100 Euro. This would result in the 2015 and 2016 notices being amended and the costs only being considered through depreciation. In 2015, the landlord could still reasonably assume that the expenses for cosmetic repairs were fully deductible. However, upon request, the costs for cosmetic repairs can still be deducted immediately and excluded from the 15% limit check. Then the remaining 10.100 Euro would also be immediately deductible.

The Federal Fiscal Court has recently ruled that repair costs - despite exceeding the 15% limit - do not constitute near-purchase production costs. Rather, such costs are maintenance expenses and fully deductible as income-related expenses. This is because repair costs to rectify damage that did not exist at the time of purchase but was demonstrably caused later by the culpable actions of a third party are not to be classified as near-purchase production costs (BFH ruling of 9.5.2017, IX R 6/16).

The case: The claimant purchased a flat on 1.4.2007, which was in a defect-free condition. She also took over the existing tenancy. In September 2008, she terminated the tenancy. The tenant left the flat in a damaged condition (broken windows, mould, damaged floor tiles, water damage). Approximately 20.000 Euro were required in 2008 to repair these damages. The claimant claimed these as immediately deductible income-related expenses, but the tax office wanted to treat them as near-purchase production costs. The tax judges ruled in favour of the claimant.

Recently, the Lower Saxony Finance Court ruled that maintenance expenses are not immediately deductible even if the 15% limit is exceeded, for example, if a tenant suddenly dies shortly after purchasing a property and the flat needs to be extensively renovated for re-letting (ruling of 26.9.2017, 12 K 113/16).

The Federal Fiscal Court has recently ruled that expenses incurred before the purchase are not to be included in the 15% limit check (§ 6 para. 1 no. 1a EStG) (BFH decision of 28.4.2020, IX B 121/19).

• The case: A couple purchased a multi-family house. The agreed purchase price was to be paid by 1.1.2012 at the latest. The transfer of ownership was to take place immediately after full payment of the purchase price. Since the buyers needed to carry out extensive construction work but wanted to rent out the flats in the building as soon as possible, they agreed with the previous owners that the necessary renovations could begin before payment of the purchase price, as early as October 2011.
• They incurred costs of almost 68.000 Euro for the construction work in 2011. The 15% limit was already exceeded with these expenses alone. The tax office therefore informed the taxpayers that the expenses for the repair and modernisation of the building were to be added to the purchase costs. Consequence: no immediate deduction of the costs in 2011; instead, only an increase in the basis for depreciation (AfA). The property buyers argued that the three-year period only begins with the purchase, i.e. with the transfer of economic ownership. This is the point at which possession, risk, benefits, and burdens are transferred according to the notarial purchase contract - here with payment of the purchase price only in 2012.
• Therefore, only expenses incurred after this point are to be included in the 15% rule. The amount of around 68.000 Euro was incurred before the purchase. These expenses were preliminary income-related expenses from renting and leasing. Furthermore, a notarial purchase contract already existed, and the buyers could have brought about the transfer of possession, risk, benefits, and burdens by paying the purchase price themselves, as they did. The investments were made in agreement with the previous owners and solely in connection with the acquisition of ownership and the existing rental intention.
• The tax court followed the taxpayers' view and upheld their appeal (FG Rheinland-Pfalz, ruling of 13.11.2019, 2 K 2304/17). The BFH surprisingly quickly dismissed the tax office's appeal against this (BFH decision of 28.4.2020, IX B 121/19).

For the 15% limit check, expenses must be stated net, i.e. without VAT. There are numerous cases where the tax authorities use gross values, leading to a - slight - exceedance of the limit. But this is incorrect. Accurate calculation is therefore essential. It should also be noted that "genuine" production costs, particularly expenses for extensions, are still only considered within the framework of depreciation.

How should renovation costs after purchasing a house be assessed?

When will I receive the special expenses deduction?

In addition to the allowances, the tax incentives for the Riester pension provide a financial benefit for investors. You can deduct not only your own contributions but the entire savings amount, including the government allowances, up to the specified maximum limit as special expenses on your tax return.

As part of the tax return, the tax office automatically checks whether the government allowances or the deduction for special expenses offers a greater advantage for the insured person. If the tax benefit is higher than the allowances, the tax office refunds the difference. To claim contributions as special expenses in the tax return, you need the certificate from the Riester provider. You must also fill in the "Anlage AV".

Even if you have not yet received your provider's certificate, you should submit your income tax return. Generally, the tax office already has an electronic notification from the Riester provider, so the tax office can take your Riester contributions into account.

Since 2008, a maximum of 2,100 Euro can be deducted as special expenses. The tax benefits are particularly worthwhile for high-earning savers.

You must claim the deduction for special expenses in your income tax return for the year in which you paid the contributions into the Riester contract. Not only your own contributions but also the Riester allowances are eligible. The decisive factor is always your allowance entitlement, not the actual allowance paid. Even if you do not apply for an allowance, the allowance entitlement can be deducted as special expenses and is added in the income tax assessment. It is therefore not possible to forgo the pension allowance and instead take the tax advantage for yourself. However, always remember to pay at least the basic amount, including for a spouse who may only be indirectly eligible.

Please also note the following information: The provider of your pension contract transmits the pension contributions to be taken into account, including the contract data, identification number, and allowance or social security number, to the tax authorities via data transmission. As mentioned, you must submit the Anlage AV if you are applying for a deduction for special expenses. By submitting the Anlage AV, the additional deduction for special expenses is claimed for all (!) transmitted pension contributions.

If you do not wish to claim a deduction for special expenses for all transmitted pension contracts, please do not submit the Anlage AV.

Multiple pension contracts

If you exceptionally have multiple pension contracts, it becomes quite complicated, and you should note the following:

• The pension allowance is only granted for two of these contracts.
• However, there is no such limit for the deduction for special expenses.
• If you submit the Anlage AV, the deduction for special expenses is granted for all transmitted pension contracts; more precisely, it is calculated and then capped.
• If you do not want to claim the additional deduction for special expenses for all contracts, please make entries in lines 31 to 40.

The advantage of waiving the deduction for special expenses is that the later pension from this contract is not taxed in full but only at the more favourable rate. In addition, the contributions can be deducted as other pension expenses within the maximum limits, provided there is still "leeway". However, for the slightly more favourable taxation later, no "Riester allowance" may have been granted for the affected contract.

The allowance beneficiary can declare to their provider that they do not intend for the tax authorities to take into account the pension contributions paid to the provider for the respective contract when determining the deductible special expenses under § 10a of the Income Tax Act (§ 10 para. 4 sentence 1 Pension Implementation Regulation). If the provider has such a declaration, they will no longer transmit any data to the tax authorities from the following year.

When will I receive the special expenses deduction?

Who is eligible for the Riester bonus?

Eligibility for government funding through a Riester contract is granted to all those who pay compulsory contributions into the statutory pension insurance. For married couples, it is sufficient if one spouse meets the requirements; the partner can then also secure the funding.

Compulsory members include:

• Employees in the private sector and public service,
• Civil servants, judges, and career soldiers,
• Apprentices,
• Mini-jobbers who waive exemption from pension insurance (from 2013),
• Unemployed individuals receiving unemployment benefit I or II,
• Mothers or fathers during the three-year parental leave,
• Students who are subject to pension insurance due to a job or internship,
• Individuals receiving a pension due to full reduction in earning capacity or benefits due to full incapacity for service,
• Individuals who care for a person in need of care for at least 14 hours a week at home and are not employed for more than 30 hours a week,
• Disabled employees in sheltered workshops and similar facilities,
• Self-employed individuals subject to pension insurance, e.g. educators and teachers, artists and publicists.

Not eligible for funding:

• Voluntary pension contributors,
• Self-employed individuals not subject to pension insurance,
• Mini-jobbers who have applied for exemption from pension insurance.

If only one partner in a married couple belongs to the eligible group, a special regulation applies. Both partners can take out their own contracts and receive the Riester funding. However, the spouse who is only "indirectly" eligible must pay the basic amount of 60 Euro.

Who is eligible for the Riester bonus?

Am I directly or indirectly eligible for funding?

"Directly eligible for the bonus" are employees who are compulsorily insured in the statutory pension scheme and are therefore affected by the reduction in the pension level. The same applies to civil servants, judges, and career soldiers as well as employees with a similar pension scheme. Since 2008, this also includes disability pensioners and pension recipients.

If both spouses belong to the eligible group, each of them is entitled to the pension bonus separately. The condition is that each has concluded a pension contract and makes contributions. To receive the maximum possible bonus, each spouse must pay the required minimum personal contribution of 4 percent of the previous year's income.

However, if only one spouse belongs to the eligible group, the non-eligible spouse (e.g. housewife, self-employed) has a derived bonus entitlement and is therefore "indirectly eligible for the bonus". The indirect bonus eligibility takes into account that the other spouse is also affected by the reduction in the pension level, as they will later receive lower survivor benefits. The condition for indirect bonus eligibility is that both spouses have each concluded a Riester contract in their name and the indirectly eligible spouse pays at least 60 Euro per contribution year into their contract.

Am I directly or indirectly eligible for funding?

Do I have to apply for the Riester bonuses - even if I want to receive a special expenses deduction?

Yes. If you want to receive the bonuses for the current year, you must take out a Riester contract by the end of the year and transfer your own contribution in good time. The bonuses are not automatically credited by the state; they must be applied for. You have two years after the contribution year to do this, after which the entitlement expires.

It is clear: the sooner the bonuses are credited to your account, the longer the money can work, thanks to the so-called compound interest effect.

In the past, many savers failed to submit their bonus application. The procedure has therefore been simplified. You can now submit a permanent bonus application - also for the future. You will receive the application from the provider of your pension contract. By doing so, you authorise the Riester provider to submit the application independently. This means the annual application procedure runs automatically. However, if there are any changes to the bonus requirements, such as the birth of a child, you must inform the provider.

The Central Pension Bonus Office (ZfA), based in Brandenburg an der Havel, is responsible for paying out the bonuses. Once the saver has completed their bonus or permanent bonus application, the bonuses can be paid directly to the Riester contract provider, who credits them to the relevant account. The bonuses are paid out quarterly on fixed dates.

You must always apply for the bonuses, even if you assume you can claim a special expenses deduction. Otherwise, you will lose part of the funding. This is because the special expenses deduction only gives you a tax advantage on the amount that exceeds the Riester bonuses. The bonus is always counted as a tax benefit already received.

It does not matter whether you receive the bonuses or not. However, if you have submitted the permanent bonus application to your Riester provider, you do not need to worry about this.

Do I have to apply for the Riester bonuses - even if I want to receive a special expenses deduction?

How much are allowances and special expenses for Riester?

Anyone who pays an annual minimum contribution of 4 per cent of the previous year's income into their Riester contract receives the full bonuses. Every Riester saver receives the so-called basic bonus, which is 175 Euro. A flat-rate child bonus is paid for each child eligible for child benefit. This amounts to 185 Euro for children born before 2008 and 300 Euro for children born on or after 1 January 2008. Unless otherwise agreed, the child bonus is paid into the mother's account. However, the couple can apply for the child bonus to be allocated to the father. Such a transfer application remains valid until it is revoked. By the way, the application is possible for each individual child, so that, for example, one child can be allocated to the father and another to the mother.

Example: A married couple with two children (born in 2002 and 2009) receives a total of 835 Euro in Riester bonuses per year.

If you do not pay the respective minimum contribution into the Riester contract, you will only receive the bonuses on a pro rata basis. However, you can immediately deduct the bonuses from your calculated minimum personal contribution (four per cent of the previous year's income). The remainder is your actual minimum savings amount that you must pay to receive the full bonuses.

Since 2008, a maximum of 2.100 Euro can be deducted as special expenses. This makes the tax benefits particularly worthwhile for high-earning savers. You must claim the special expenses deduction in your income tax return for the year in which you paid the contributions into the Riester contract. Not only your own contributions are eligible, but also the Riester bonuses. The decisive factor here is always your bonus entitlement, not the actual bonus paid. Even if you do not apply for a bonus, the bonus entitlement can be deducted as special expenses and is included in the income tax favourable assessment. It is therefore not advisable to forgo the pension bonus and instead take the tax advantage for your own use.

How much are allowances and special expenses for Riester?

Will I have to pay tax on my Riester pension later?

Yes. Since the Riester pension is built up from untaxed income, later payments are subject to regular income tax. The pensions are therefore not only taxed on the income share (the interest), as is the case with payments from a private pension insurance that is not state-supported. Pensions from a Riester contract must be fully taxed in retirement, although they benefit from the retirement relief amount.

For future pensioners, this means: If they have taken out a private pension insurance that is not subsidised and for which they pay contributions from taxed income, they only have to tax the income share in retirement. However, if the pensioners have chosen an investment form for which they have received state bonuses, they must tax the pension at their personal tax rate. This depends on the total income of the retiree. This applies to all subsidised investments, including insurance as well as fund or bank savings plans.
The good news: No withholding tax, as this is not capital income, but "other income". Although, for example, capital gains from conventional fund savings plans have been subject to withholding tax since 2009, Riester fund savings plans are exempt from withholding tax. This also applies to profits from other Riester investments. However, the pensions must be taxed at the personal tax rate (deferred), which depends on the total income.

Wohn-Riester: Complicated taxation. For Wohn-Riester, deferred taxation is applied. The contributions remain tax-free, only the pension itself must be taxed - at the personal tax rate. And this is where it gets a bit complicated with Wohn-Riester: The contributions and bonuses are recorded on an imaginary "housing subsidy account" with assumed interest of two percent. However, the saver cannot access the account, as the funds recorded there are invested in property funding and no longer exist in principle. At the start of the "payout phase", when other "conventional" Riester savers receive their pension and have to tax this income, the Wohn-Riester saver also receives a notice of their tax debt that has accumulated on the imaginary account over the years. The homeowner pensioner then has a choice: Tax everything at once and receive a 30 percent discount as a reward. Or opt for gradual taxation: Here, they can pay off their tax debt in instalments over a period of up to 23 years, like anyone receiving a regular Riester pension. Again, the tax rate depends on the retiree's total income.

Will I have to pay tax on my Riester pension later?

Am I entitled to the Riester bonus for every private pension plan?

No. You cannot receive Riester funding for every private pension plan. Only pension contracts certified by the Federal Insurance Supervisory Office are eligible for funding. The following conditions apply for certification:

• Start of pension: Payments may begin no earlier than the age of 60 or the statutory retirement age. For contracts concluded from 1 January 2012, payments may not begin before the age of 62.
• Payment: Payments must be made as a constant or increasing pension; for new contracts, a lump sum of up to 30 per cent is also possible. From the age of 85, a lifelong pension guarantee must be in place.
• Contribution guarantee: At the start of the pension phase, at least the contributions paid plus bonuses must be available.
• Distribution of costs: For contracts concluded from 2005, the initial costs must be spread evenly over at least five years. For older contracts, a limit of ten years applies.
• Non-transferable: A Riester contract cannot be assigned or transferred to others.
• Security: The accumulated capital may not be seized or pledged.
• Transparency: Providers must inform savers annually about the deducted initial, distribution, and administration costs. Costs associated with changing contracts must also be disclosed.
• Unisex tariffs: Women and men pay the same contribution for newly concluded contracts.

These certification criteria only indicate which pension contracts can be funded. However, certification is not a seal of quality for a Riester contract.

Am I entitled to the Riester bonus for every private pension plan?

What is Wohn-Riester and how is it taxed?

The Home Pension Act came into force on 1 January 2008. With the home pension, state bonuses and personal savings contributions are used to finance the construction of a house, purchase a flat, or pay off a residential property. This is provided it is an owner-occupied property. You can receive the funding as soon as you are entitled to Riester funding. Anyone who is compulsorily insured in the statutory pension scheme or a civil servant is entitled to state funding through a Riester contract.

Complicated taxation
However, deferred taxation is applied to the home pension. The contributions remain tax-free; only the pension itself must be taxed - at your personal tax rate. And this is where it gets a bit complicated with the home Riester: The contributions and bonuses are to be recorded on an imaginary "housing subsidy account" with assumed interest of two per cent. However, you cannot access the account, as the funds recorded there are invested in property funding and, in principle, no longer exist. At the beginning of the "payout phase", when other "conventional" Riester savers receive their pension and have to declare it as income, the home Riester saver also receives a notice of their tax liability that has accumulated on the imaginary account over the years.

The home pensioner then has a choice: Tax everything at once: As a reward, they receive a 30 per cent discount. Or gradual taxation: Here, they can pay off their tax liability in instalments over a period of up to 23 years, like anyone receiving a regular Riester pension. Here too, the tax rate depends on the pensioner's total income.

Another sticking point: If you chose the one-off taxation, the following applies:

If you cease to use the residential property yourself within 20 years of the start of the pension phase, the remaining amount of the 30% dissolution amount must also be taxed as "other income" at the individual tax rate. But beware: The remainder of the 30% dissolution amount is to be taxed

• at one and a half times the amount if the tax-damaging event occurs in the first 10 years after the start of the pension phase (understand this penalty taxation if you can!),
• at the full amount if the tax-damaging event occurs between the 10th and 20th year after the start of the pension phase. The period after ceasing self-use is not decisive.

What is Wohn-Riester and how is it taxed?

Where can you obtain your social insurance number or bonus number?

To ensure that the relevant data and the granting of bonuses can be assigned to the respective person, each person entitled to Riester funding receives a Riester bonus number, under which the stored data is managed as part of the bonus account.

Social security number = bonus number

For persons who already have a social security number, this is used as the Riester bonus number. Anyone in employment subject to social security contributions receives a social security number. This is used to register with the pension insurance provider, and later the pension is paid out using this number.

When the employer reports the start of employment (including mini-jobs) to the health insurance company or mini-job centre, a social security number is usually automatically assigned to the employee by the pension insurance provider. The pension insurance number is usually entered as the social security number in the social security card.

What should I do if I don't have a social security number?

If you do not yet have a social security number and are employed in a job subject to social security contributions, you can apply for the social security number through your health insurance company.

Civil servants, judges and professional soldiers must apply for their bonus number

Civil servants, judges and professional soldiers receive their pension in the form of retirement benefits from their employer. They are therefore not registered with the pension insurance providers and do not receive a social security number. Therefore, all civil servants who have not received a social security number before their civil service (for example, because they have never worked as an employee) must apply for a Riester bonus number.

The employer or salary office provides a corresponding form for applying for a bonus number or for the declaration of consent.

Where can you obtain your social insurance number or bonus number?

Is the Riester bonus worth it during parental leave?

Parents who care for their child during the first three years receive child-raising periods credited to their pension account - three pension points. For children born before 1992, the credit is now two pension points from 1 July 2014, instead of one (§ 56 and § 249 SGB VI). During the period for which they are credited with child-raising periods, individuals are legally subject to compulsory statutory pension insurance (§ 3 No. 1 SGB VI).

• Due to the compulsory pension insurance, the non-working parent is entitled to the Riester subsidy and is even "directly" eligible for the allowance, provided they have their own Riester contract.
• The subsidy consists of a basic allowance of 175 Euro and a child allowance of 300 Euro per child, and, in the case of higher income, possibly an additional special expenses deduction of up to 2.100 Euro.
• To receive the full allowance, a personal contribution of 4% of the previous year's income minus the allowance entitlement, maximum 2.100 Euro minus the allowance entitlement, must be paid into the Riester contract, but at least the minimum amount of 60 Euro. For one child, the mother must pay a maximum of 1.625 Euro (2.100 Euro - 175 Euro - 300 Euro).

The child-raising period begins after the month of birth and ends after 36 calendar months. However, for the Riester subsidy, it is sufficient if the conditions are met in just one month of the year. For example, if the child is born in November, the child-raising period begins on 1 December. But the Riester subsidy is available for the whole year.

What happens to the child-raising period that cannot be used due to the birth of another child? There is a very favourable solution: If another child is born within the 36-month child-raising period, the child-raising period for this child is extended by the number of calendar months of simultaneous upbringing. The unused months of the first child's upbringing period are "added" to the second child. The same applies to multiple births: Here, the child-raising period is taken into account twice or three times.

About the minimum contribution:
If the young mother was employed in the year before the birth of the child, the previous year's income is used as the basis, even if no income subject to contributions is earned in the first year of upbringing. To receive the full allowance, 4% of the previous year's earnings must be paid into the Riester contract, maximum 2.100 Euro, each minus the allowance entitlement. In the second and third year of child-raising, the minimum amount of 60 Euro as a personal contribution will then be sufficient, provided no employment was taken up in the previous year. If the young mother had no or only a low income in the year before the birth of the child, the minimum amount of 60 Euro is also sufficient. If the mother takes up employment during the child-raising period or after the third year, she only has to pay the minimum amount in the first year of employment, as the "zero income" of the previous year is used as the basis.

It still needs to be clarified whether parental allowance counts as personal income and is therefore the basis for the minimum contribution. No, according to the Federal Ministry of Finance, parental allowance is not considered relevant income and is therefore not taken into account in the calculation of the minimum personal contribution (BMF letter of 14.11.2007, IV C 8-S 2492/07/0004).

Is the Riester bonus worth it during parental leave?

Who is a member of a pension fund?

The horticultural pension fund is the institution responsible for the statutory pension scheme for farmers and gardeners. Its local jurisdiction covers the territory of the Federal Republic of Germany.

Persons insured with the pension fund are, by law, entrepreneurs of commercial horticultural businesses whose operations are based on land cultivation and have reached a certain minimum size. In addition, the spouses and family members working for these entrepreneurs are insured.

The farmers' pension scheme is an occupational statutory pension scheme for entrepreneurs, their spouses, and family members working for them. Horticultural businesses involved in primary production are considered part of agriculture.

The horticultural pension fund in Kassel is responsible nationwide for the pension scheme for gardeners.

If you are a member of a pension fund, you must provide your membership number when applying for the pension allowance as part of the Riester pension.

Who is a member of a pension fund?

What is the amount of the Riester child allowance?

For each child eligible for child benefit, a fixed child allowance is paid if the father or mother takes out a Riester contract. This allowance is 185 Euro for children born before 2008 and 300 Euro for children born on or after 1 January 2008. Unless otherwise agreed, the child allowance is paid into the mother's account.

Spouses can apply for the child allowance to be allocated to the father. Such a transfer application remains valid until it is revoked. By the way, the application can be made for each individual child, so that, for example, one child can be allocated to the father and another to the mother.

For divorced or unmarried parents, the child allowance is granted to the person receiving the child benefit. If both parents receive child benefit for the same child in succession, the child allowance is granted to the parent who received child benefit for the first entitlement period in the calendar year.

What is the amount of the Riester child allowance?

Who receives the child allowance?

The government supports Riester contracts with bonuses and tax advantages. The basis of the Riester funding is the basic bonus for the saver themselves and the child bonus if the saver has children. The child bonus is not automatically received by the parent who also receives the child benefit, but generally by the mother if married. If both parents apply, the child bonus can also be transferred to the father.

To do this, you must enter the number of children in your tax return - in the AV annex - for whom the child bonus is to be transferred from the mother to the father. You must also specify in the bonus application with your Riester provider if you want to transfer the child bonus to the father. If the parents are permanently separated or not married, the child bonus goes to the parent who is fully taxable and actually receives the child benefit.

This can also be a stepfather or stepmother. If the entitlement to child benefit changed during the year, the decisive factor is who received the child benefit at the beginning of the year.

To receive the full funding, you must save four per cent of the previous year's income subject to social insurance contributions. The relevant amount is the previous year's income. If you save less, you will receive a partial bonus. If you are temporarily not liquid, you can suspend your Riester contract, but you will also have to forgo the government funding. Non-eligible spouses can receive the basic bonus if they have their own Riester contract and pay in at least the minimum amount of 60 Euro.

The following calculation shows how the funding works for a family with two children:

The gross family income is 40.000 Euro in the year 2023. For the full funding, at least 1.600 Euro must be paid into the Riester contract in the year 2024.

The government helps with the basic bonus of a total of 350 Euro for both spouses (2 times 175 Euro).

In addition, there is the child bonus of 185 Euro per child (born before 2008). For two children, this amounts to 720 Euro in government bonuses that the family is entitled to annually. These are deducted from the 1.600 Euro minimum savings, so the family only has to contribute 880 Euro in the year 2024. If the personal contribution is lower, the funding will be reduced accordingly.

Who receives the child allowance?