In principle, the state has an interest in ensuring that as many people as possible make provisions for old age. Because one thing is certain: the statutory pension will only be sufficient in the fewest cases. There are numerous programs to promote private pension provision, including Wohn-Riester (Riester housing subsidy). This subsidy helps you build or buy your own property so you can live rent-free in old age.
What is Wohn-Riester?
In 2002, the so-called Riester pension was introduced in Germany. Here, savers can benefit from tax advantages and government subsidies for private pensions. Once the retirement age is finally reached, the contributions from the Riester pension are paid out monthly. This in turn ensures that pensioners have more money to spend.
The regular money Riester was supplemented 6 years later within the framework of the Eigenheimrentengesetz by Wohn-Riester. The principle is similar: You pay regularly into a Riester contract and benefit from tax advantages and government subsidies during the savings phase. Unlike money riester, however, contributions are not paid out until retirement age. Instead, you can use the subsidy to buy your own residential property. Even so, as a retiree, you end up with more money to spend, since you don't have to shoulder monthly rent payments.
Who receives the "Wohn-Riester?
Put simply, Wohn-Riester is available to anyone who pays into the statutory pension scheme. It does not matter whether you work full-time or part-time. Self-employed people who make voluntary contributions to the statutory pension fund are also eligible for subsidies. Wohn-Riester is also available for these groups of people:
- Artists who are insured through the Kunstlersozialkasse and contribute to the statutory health insurance fund
- Civil servants, judges and civil servant-like temporary soldiers who do not pay into the statutory pension scheme
- Recipients of reduced earning capacity or invalidity pensions
- Recipients of ALG I or ALG II (Hartz IV)
- Parents who limit themselves to childcare during the first 36 months after birth
- Participants in the Federal Volunteer Service
If you are not eligible for a subsidy, but your partner is, then you have the option of contributing to the subsidy. The prerequisite for this is that your partner pays the minimum amount of 4 percent of annual gross income into the Riester contract. If you then pay the basic amount of 60 euros per year, you will also benefit from the Riester housing subsidy.
What requirements must be met for Wohn-Riester?
The fact that you are eligible for subsidies is not enough to be able to benefit from Wohn-Riester. Instead, a number of other requirements also apply, mainly relating to the property in question:
- You must live in the property yourself on a permanent basis.
- you are the owner or co-owner of the property.
- The property must be registered as your main residence or obviously represent your center of life.
- The property must be located in the European Union (EU).
Whether Wohn-Riester is right for you depends largely on whether you really want to live in the property yourself in the long term. Thus, you must have at least 20 years after the start of your education or until the age of 80. You must have lived in the property for at least one year before the age of 65. If the house becomes too big for you when you retire, you cannot simply give it away to your children and move into a smaller – and lower-maintenance – rented apartment instead. Even in the event of divorce, the subsidized property cannot simply be sold elsewhere. In these cases, a "harmful use" is assumed and you would have to immediately pay back tax on the allowances already received and, if applicable, repay allowances.
The advantages of Wohn-Riester
The benefits of the Riester subsidy can basically be divided into 2 categories: Tax benefits and state allowances.
Tax benefits with Wohn-Riester
When you file your tax return, you can declare your Riester contributions as income-related expenses. However, you can buy a maximum of 2.Claim 100 euros against tax. How high the refund will be in the end depends entirely on your personal tax rate. The rule is: if you earn more and pay correspondingly higher taxes, you will also receive more back. However, you should not be quite so euphoric about the refund, because all the allowances received will be deducted from the stated contributions. If you receive large subsidies – for example, because you have many children – this can even render the tax advantage completely null and void.
Allowances for the Riester housing subsidy
As a rule, the state allowances are more important than the tax benefits. To qualify for the subsidy, you must pay at least 4 percent of your gross annual income into your Riester account. The calculation basis for this is the income subject to social insurance contributions from the previous year.
Amount of the allowances for Wohn-Riester
- Basic allowance per year: € 175
- Allowance per child (born before 2008): €185
- Allowance per child (born from 2008): €300
- Bonus allowance if the Riester contract is taken out before the child reaches the age of 25. The tax credit is a one-time payment of 200 €
Since the Riester allowances are strongly dependent on the number of children, Wohn-Riester is mainly worthwhile for young families who dream of owning their own home but have little equity capital.
Downstream taxation – the major disadvantage of the Wohn-Riester system
In the media, the Riester subsidy often does not come off very well. This is mainly due to the fact that it also entails disadvantages that many eligible persons like to suppress in view of the prospect of state allowances. The biggest disadvantage of the residential pension is the deferred taxation. In simple terms, this means that although you benefit from tax advantages in the so-called savings phase, you have to pay tax on all allowances and repayments later on.
Explained as follows: Wohn-Riester is intended to enable you to live rent-free in old age. Otherwise, you would have to rely on supplementary pensions, which you would have to pay tax on. Since Wohn-Riester is a kind of substitute pension, you will have to pay taxes on it when you retire.
Whereas with a regular pension payment you simply pay tax on the payout, this is somewhat more difficult with Wohn-Riester. After all, you do not receive any money later, you only save on rent payments. Instead, the so-called "Wohnforderkonto" (housing subsidy account) is used, which the allowance office manages for you. All allowances and repayments that you have received as part of your Wohn-Riester are recorded there.
But that's not enough: Because you have an advantage by moving into your own home early and can enjoy the "replacement pension" early on, the allowances on paper earn interest at 2 percent annually. This means that if you have total allowances of 15.If you have a savings account with an annual interest rate of 2 percent and you have 25 years until retirement, you will have the following amount on your housing subsidy account at the end of the year: 24.721 euros. You have to pay tax on this at your personal tax rate.
How to pay taxes on Wohn-Riester in old age?
After the end of the savings phase – i.e. usually when you retire – the taxes on your Wohn-Riester subsidy are due. You can choose between 2 options for the payment:
- One-time payment: If you have saved up enough assets, you can pay the amount all at once. You will receive a tax rebate of 30 percent for this amount.
- Annual payment: From the start of disbursement, you must pay tax on the loan until you reach the age of 85. You make an annual partial payment on your 60th birthday.
Paying taxes all at once is not only advantageous because of the rebate. Die before your 85th birthday. If you reach the age of 65, the tax liabilities are passed on to your heirs.
Take out a Riester home loan: What options are available?
Wohn-Riester is designed to make it easier for you to buy or build your own property for residential purposes. Because of the many different options for real estate financing, there are also different Wohn-Riester options.
Behind this option is a regular real estate loan. The state subsidies flow directly into the repayment, which means that you will have paid off your property more quickly in the end. You can use the subsidy to buy a property or build your own home. The latter is often referred to as "Bau-Riester".
Residential Riester home savings contract
You know that you want to buy your own home one day in the future? In this case, a Riester home savings contract may be the right choice for you. In this case, the allowances increase your building savings balance. If you have saved up a sufficiently large balance and the building society is ready for allocation, you will receive your favorable building society loan, which you can then use to buy the property of your dreams.
Riester home savings instant financing
A combination of the two aforementioned variants is also possible: the so-called Bausparsofortdarlehen (immediate building savings loan). In this case, you receive the loan amount paid out directly and then pay into your home savings account. This option can also be combined with Riester subsidies. However, before you take out an immediate home savings loan, you should take a close look at the fine print. Such contracts are usually very complex and are often accompanied by high costs and a non-transparent fee structure.
FAQ: The most important questions and answers about "Wohn-Riester
For whom is Wohn-Riester worthwhile?
Since the Riester allowances are strongly dependent on the number of children, Wohn-Riester is mainly worthwhile for young families who dream of owning their own home but have little equity capital. If you as a single person would only benefit from the tax advantages and the basic allowance, you should calculate the whole thing well. You should also bear in mind that you will have to pay tax on the subsidy when you retire.
Can I sell the subsidized property?
The most important prerequisite for Wohn-Riester is that you live in the subsidized property yourself on a permanent basis. Every now and then, however, things in life turn out differently than planned: For example, you can only sell the beneficiary property if you purchase and move into a new eligible property within 5 years. You can't move into a rented apartment just like that. You would then have to repay any allowances received and pay tax on them afterwards.
I have to move for work-related reasons: What happens to the beneficiary property??
If you are transferred to another city and this requires a job-related move, you can rent out your Riester property in the meantime. However, you must immediately move back into the house or apartment when you reach retirement age.
I already have a money Riester contract. Can I convert this to Wohn-Riester?
Yes, if you are already a regular Riester beneficiary and now want to buy or build a property, you do not necessarily have to take out a new Riester contract. Instead, you can withdraw credit from your existing contract either in full or in part. However, if you want to keep the old contract running so that you can additionally benefit from regular payouts in old age, the following applies: Partial withdrawals are only possible if you have at least 3.000 euros and at the same time make at least 3.000 euros remain in the existing Riester contract.
Can I use Wohn-Riester exclusively to buy or build my own home??
No, you can also use Wohn-Riester for other purposes. This is how you can apply for the subsidy if you want to acquire compulsory shares in a shared apartment or a permanent right of residence in a nursing or retirement home. Riester is also an option if you already own a property and want to convert it to make it barrier-free and age-appropriate for your upcoming retirement.
What happens to the current Riester contract in the event of death?
What happens in the event of death depends entirely on whether you die in the savings phase or in the payout phase. In the first scenario, your heirs can take over your Wohn-Riester within one year. If this is not desired, the contract will be terminated, and your heirs will have to pay the taxes on the payments already made on your behalf.
If you die during the payout phase, your heirs will also have to pay the taxes on your behalf. However, if you have opted for the lump-sum payment and paid all taxes in one go, your heirs will of course not have to pay anything more. If you have a partner, he can also take over the contract. The prerequisite for this is that he or she has inherited the property and also wants to continue living in it. In addition, if you take over the contract, the partner must also assume any tax payments.
Conclusion: Wohn-Riester is not for everyone
Tax advantages and financial injections from the state: What sounds attractive at first glance, brings with it some disadvantages upon closer examination. This is how you should find out exactly about the tax burden in old age. This is the only way you can calculate whether the Riester subsidy is really worthwhile for you. A rule of thumb says: Riester is worthwhile primarily for families with many children and low income, who want to realize their dream of owning a home through the subsidy.