Taxes on withdrawals in Germany: gain share, Sparerpauschbetrag, Günstigerprüfung in retirement and health insurance on capital income

What you will learn

• How to compute the tax hidden in a withdrawal from the gain share and the Teilfreistellung.
• How much gain the Sparerpauschbetrag shelters each year and why you should realise it every year.
• When the Günstigerprüfung refunds flat tax to a retiree with low income.
• Why health and care insurance contributions on capital income can cost an early retiree more than tax, and when they stop.

Explanation

This lesson is a general orientation for Germany as of 2026. Rules and figures change; check the current rules and, for your own case, consult a Steuerberater. The basics of Abgeltungsteuer, Vorabpauschale and Teilfreistellung were covered in the course ETFs, Funds & Long-Term Investing, and the Günstigerprüfung in detail in the course German Investor Taxes. Here we apply them to a withdrawal plan.

Only the gain is taxed. A withdrawal of €30,000 is partly your own money coming back (the acquisition cost) and partly gain. The gain share g = 1 − cost / sale value. Tax on the withdrawal W from an equity fund is

tax = W × g × (1 − 0.30) × 26.375 %

where 0.30 is the Teilfreistellung for equity funds, 25 percent is the flat tax and the 5.5 percent solidarity surcharge on it brings the rate to 26.375 percent; church tax comes on top where it applies. At a 60 percent gain share, the effective tax is 0.6 × 0.7 × 26.375 = 11.1 percent of the withdrawal; at 30 percent gain share it is 5.5 percent. Early in retirement, FIFO (lesson 6) pushes the gain share up; late in a long retirement it approaches the portfolio's total gain share.

Sparerpauschbetrag. The allowance for capital income is €1,000 per person and €2,000 for jointly assessed couples (2026). Because only 70 percent of an equity-fund gain counts, the allowance covers a gross gain of €1,000 / 0.7 = €1,428.57 (€2,857.14 for a couple) per year, plus any distributions and Vorabpauschale that use it first. An unused allowance is lost at year-end. Rule of thumb: file a Freistellungsauftrag with the Depot bank, and each December check how much is unused and, if useful, sell and immediately repurchase units to realise exactly that gain (this raises your acquisition cost for later). Note that realising a gain only to use the allowance is pointless if distributions already use it.

Günstigerprüfung in retirement. You can request on the Anlage KAP that capital income is taxed at your personal progressive rate instead of 25 percent; the Finanzamt applies the cheaper result automatically. In working life this rarely helps. In retirement it often does: a person who lives mostly on withdrawals has little other taxable income, and the Grundfreibetrag (basic tax-free amount) is €12,348 per person in 2026 (€24,696 for couples). Taxable capital income inside the Grundfreibetrag is then taxed at zero and the withheld flat tax is refunded. Above it, the personal rate starts at 14 percent and only reaches 25 percent at a middle income, so a retiree with a modest statutory pension may still gain. The solidarity surcharge on income tax also has an exemption threshold, which the flat tax ignores. Consequence for planning: in years with low other income, deliberately realising more gain (lesson 6, second Depot) can be almost free.

Health and long-term care insurance. This is the item most FIRE calculations forget. In the statutory system (GKV) the rule depends on your status:

• Voluntarily insured (freiwillig versichert), the usual status of an early retiree between leaving work and the statutory pension: contributions are due on all income, including capital income and realised gains and rent, at the general rate (14.6 percent in 2026) plus the fund's additional contribution (on average about 2.9 percent in 2026) plus long-term care (3.6 percent with children, 4.2 percent without, 2026), subject to a minimum assessment base (about €1,318 per month in 2026, giving a minimum of roughly €280 per month even with no counted income) and a maximum at the contribution ceiling (€5,812.50 per month in 2026). The fund decides which capital income counts and how; ask your Krankenkasse in writing.
• Compulsorily insured in the Krankenversicherung der Rentner (KVdR), from the start of the statutory pension if you meet the so-called 9/10 rule (member of the GKV for at least 90 percent of the second half of your working life): contributions are due on the pension and company pensions only; capital income and rent are contribution-free. This can be worth several thousand euros a year, so protect your KVdR eligibility when you plan years abroad or in private insurance.
• Family insurance through an employed spouse is free but only up to a low monthly income limit; check the current figure.
• Private insurance (PKV) charges by age and tariff, not by income; premiums rise with age and there is no way back into the GKV after 55 in most cases.

Worked example

Hypothetical example: Daniel, 55, single, no children, voluntarily insured in the GKV, no other income. He withdraws €30,000 from an equity ETF with a 60 percent gain share. Fees, church tax and the Vorabpauschale are excluded; 2026 figures are used and will change.

1. Gain: €30,000 × 0.6 = €18,000. Taxable after Teilfreistellung: 0.7 × €18,000 = €12,600.
2. Sparerpauschbetrag: €12,600 − €1,000 = €11,600.
3. Flat tax withheld by the bank: €11,600 × 26.375 percent = €3,059.50, that is 10.2 percent of the withdrawal.
4. Günstigerprüfung: his only taxable income is €11,600, below the Grundfreibetrag of €12,348, so income tax is €0 and the €3,059.50 is refunded after the tax return. His tax on €30,000 is zero this year.
5. Health and care insurance: assume the fund counts the €18,000 gain, €1,500 per month, above the minimum base. Contribution rate 14.6 + 2.9 + 4.2 = 21.7 percent; €1,500 × 21.7 percent = €325.50 per month, €3,906 per year.
6. Net: €30,000 − €3,906 = €26,094 to live on, or 13 percent less than planned, even though income tax was zero. Had he budgeted €30,000 of spending, the portfolio must deliver about €34,500 gross.

Variation: once Daniel draws his statutory pension and qualifies for the KVdR, the €3,906 disappears and contributions are charged on the pension instead; the capital income is then free of contributions.

Common mistake

Practice activity

On paper: Aylin and Murat, jointly assessed, both 60, retired early, voluntarily insured, no other income. They withdraw €48,000 from equity ETFs with a 50 percent gain share. (a) Taxable gain after Teilfreistellung and allowance. (b) Flat tax withheld. (c) Does the Günstigerprüfung refund it, given a joint Grundfreibetrag of €24,696? (d) If the health fund counts the full €24,000 gain and the combined rate is 21.1 percent (one of them has a child), what are the yearly contributions, assuming the counted income is above the minimum base?

Key takeaways

• Tax on a withdrawal = withdrawal × gain share × 70 percent × 26.375 percent for equity funds; only the gain is taxed.
• Use the €1,000 / €2,000 allowance every year; it shelters about €1,429 / €2,857 of gross equity-fund gain.
• With low other income, the Günstigerprüfung can reduce the tax on withdrawals to zero up to the Grundfreibetrag.
• Voluntarily insured early retirees pay GKV contributions on capital income; KVdR members do not. Budget it and protect your 9/10 rule eligibility.

Next step

Lesson 8 adds the statutory pension to the plan: timing, early-retirement deductions, voluntary contributions and how the pension start changes your withdrawal rate.