Wohn-riester: how to get the state subsidy for your own home
Basically, the government has an interest in making sure as many people as possible are providing for their old age. Because one thing is for sure: the statutory pension will only be sufficient in the fewest cases. There are numerous programs to promote private pension provision, including wohn-riester (riester). This subsidy helps you build or buy your own property so you can live rent-free in retirement.
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 retirement age is finally reached, the contributions from the riester pension are paid out monthly. This in turn ensures that pensioners have more money at their disposal.
The regular money riester was supplemented 6 years later by wohn-riester as part of the eigenheimrentengesetz (home ownership pension act). The principle is similar: you pay regularly into a riester contract and benefit from tax advantages and government subsidies during the savings phase. Unlike the geld-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 have more money available in the end, since you don't have to shoulder monthly rent payments.
Who receives wohn-riester?
In simple terms, wohn-riester is available to everyone who pays into the statutory pension scheme. It doesn't matter if you work full time or part time. Self-employed individuals who make voluntary contributions to the public pension fund are also eligible for assistance. Residential riester is also available for these groups of people:
- Artists who are insured through the kunstlersozialkasse and make contributions 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 disability or invalidity pensions
- Recipients of ALG I or ALG II (hartz IV)
- Parents who limit themselves to childcare in the first 36 months after birth
- Participants in the federal volunteer service
If you are not eligible for subsidies, but your partner is, then you have the option of participating in the subsidies. 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 wohn-riester 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 permanently occupy the property yourself.
- 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. For example, you must pay tax on your allowances at least 20 years after the start of your education or until you reach the age of 80. Living in the property for the rest of your life. If your 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, "harmful use" is assumed and you would have to immediately pay back tax on the allowances you have already received and, if applicable, repay allowances.
The advantages of wohn-riester
The benefits of riester subsidies can basically be divided into 2 categories: tax benefits and state allowances.
Tax advantages with wohn-riester
When you file your tax return, you can declare your riester contributions as income-related expenses. However, you can only pay a maximum of 2.Claim 100 euros for tax purposes. How high the refund will be in the end depends entirely on your personal tax rate. If you earn more and pay correspondingly higher taxes, you will also get 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 high 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 allowance, you must contribute at least 4 percent of your annual gross income to your riester subsidy. The calculation basis for this is the income subject to social insurance contributions from the previous year.
Amount of 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 concluded before you reach the age of 25. You must pay a one-time contribution of €200 before the age of 60
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 wohn-riester
The riester subsidy often does not come off very well in the media. This is mainly due to the fact that it also has disadvantages, which many beneficiaries tend to ignore in view of the prospect of state allowances. The biggest disadvantage of the residential riester is the downstream taxation. In simple terms, this means that although you benefit from tax advantages in the so-called accumulation phase, you must 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 therefore a kind of substitute pension, you will have to pay taxes on this in old age.
Whereas in the case of a regular pension payment, tax is simply paid on the payment, this is somewhat more difficult in the case of wohn-riester. After all, you will not receive any money later, you will only save on rent payments. Instead, the so-called wohnforderkonto (housing subsidy account) is used, which is managed for you by the allowance office. This is where all the allowances and repayments you have received as part of your wohn-riester are recorded.
But that's not enough: because you have an advantage by moving into your own home at an early stage and can enjoy the "replacement pension" at an early stage, the allowances on paper earn an annual interest rate of 2 percent. This means that if you have accumulated a total of 15.000 and you still have 25 years until retirement, your housing subsidy account will end up with the following amount at an annual interest rate of 2 percent: 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 when making payments:
- One-time payment: if you have saved up enough assets, you can pay the amount all at once. For this, you receive a tax rebate of 30 percent.
- Annual payment: from the start of payment, you must receive up to your 85. Make an annual partial payment on your 60th birthday.
It is not only advantageous to pay taxes all at once because of the discount. Die before your 85. If you reach the age of 65, the tax liabilities are transferred 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. Due to the numerous different options for real estate financing, there are also various wohn-riester options available.
Residential riester loan
Behind this variant is a regular real estate loan. The state allowances 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".
Wohn-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 account balance. If you have saved a sufficiently large credit balance and the building society is ready for allocation, you will receive your favorable building society loan, which you can finally use to buy your dream home.
Riester home savings instant financing
A combination of the two aforementioned variants is also possible: the so-called immediate building savings loan. In this case, you receive the loan amount paid out directly and then pay into your building savings contract. This option can also be combined with riester subsidies. However, before you take out an immediate home savings contract, 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 would profit as a single person exclusively 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 permanently live in the subsidized property yourself. 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 just move into a rented apartment like that. You would then have to repay any allowances received and pay tax on them afterwards.
I have to move for work reasons: what happens to the subsidized 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 residential 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 would like to keep the old contract running in order to 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 withdraw at least 3.000 euros remain in the existing riester contract.
Can I use wohn-riester exclusively for the purchase or construction of my own home??
No, you can also use wohn-riester in other ways. This is how you can apply for the subsidy if you want to acquire compulsory shares in a residential community 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 your death depends entirely on whether you die during the accumulation phase or the payout phase. In the first scenario, your heirs can take over your wohn-riester within one year. If you do not wish to do so, the contract will be terminated and your heirs will have to pay the taxes for you on the payments already made.
If you die during the payout phase, your heirs must also pay the taxes for you in this case. 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 or she 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, the partner must also assume any tax payments when taking over the contract.
Conclusion: residential riester is not for everyone
Tax advantages and financial injections from the state: what sounds attractive at first glance, brings with it some disadvantages on closer inspection. Here's how you should find out exactly what your tax burden will be 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 their own home through the subsidy.