How to cancel Wohn-Riester for a home or how to proceed?

Hello,

for the financing of the new home we are currently considering dissolving the Wohnriester, 11 years old, 23K.
What costs will we face? The advisor who sold us this product back then only gave us the telephone information that we have to repay the state subsidy and taxes, but he cannot tell us how much....
To make it more complicated, we would use this money for a house, but at the same time we still live in the self-used condominium. We do not yet know whether we will sell or rent the apartment after completion.
The advisor said that the Riester payment for residential space can only be used "tax-free" if you finance ONE self-used property with it.
Is that correct?

Yes. And the Riester pension insurance or bank pays out based on a payment authorization from the [Rentenversicherung Bund], there is a form for that. Initially, it is tax-free, but you must prove to them with a certificate of registration upon request that you actually live in the house.

Hello, We are currently considering the Wohnriester to finance the new home, 11 years old, 23K to be liquidated. What costs will we face? The advisor who sold us the plan back then only gave us the telephone information that we have to repay the government subsidy and taxes, but he cannot tell us how much.... It is made more complicated by the fact that we would use this money for a house, but at the same time still live in the owner-occupied condominium. We do not yet know whether we will sell or rent out the apartment after completion. The advisor said that the Riester payout for residential property can only be used "tax-free" if you finance ONE owner-occupied property with it. Is that correct?

If you use it for an owner-occupied property, then the subsidy does not have to be repaid. The 23k EUR will be "fictitiously" deposited into a so-called residential subsidy account from the time of use and will accrue interest at 2% per year. Upon retirement, the interest-bearing amount must then be taxed. Costs will probably amount to between 100 and 300 euros, provided it is not a building savings contract. That should be stated somewhere in the contract.

So, with "Wohnriester" we take out the "crystal ball" and look at what amount you will have to pay taxes on in retirement (ok, this can probably be easily calculated, the amount of subsidies you receive per year, plus 2% interest p.a.) BUT what comes out in the end, what taxes will be due, no one can say!

For me personally, it would be nothing because
- we do not know what the tax situation will look like in 10/20/30 years
- with current pensions the tax exemption decreases upon retirement, i.e. in some years pensions will be 100% taxable (for those who retire in a few years) so those who finance now will have pensions that are 100% taxable.
- a Wohnriester increases tax burden in retirement through the fictitious "Wohnförderkonto" = you receive nothing paid out there, but you have to pay taxes on it.
You can of course settle it in one lump sum with a 30% discount (assuming €100,000 Wohnförderkonto, 30% discount = €70,000 taxed in one go, since you probably still get a normal pension, currently calculated at 42% tax rate; that is a hefty €30k (which you have to pay in one go).
If you assume that after 35 years the €2100 in subsidies has been used, then the Wohnförderkonto will amount to €107,000.
(Of course, you can also spread the full amount over 20 years and then pay about €2,000-€2,200 annually.)

So, when you do real estate financing, you know almost everything about the interest you will pay in 20-30-40 years (if you have that long interest rate lock or use a bank/building society as full repayer).
With Wohnriester, everything looks very nice at first, but what it will actually cost you, NO ONE can say exactly.

My recommendation is therefore always:
- leave retirement provision to be retirement provision
- leave house financing to be financing

If you want to take advantage of government subsidies, there are many better options than through a building society (Wohnriester).
(if you want to secure cheaper interest rates in the future, then you better do a normal building savings contract...)

but just my opinion!

You can do it all at once with a 30% discount (assuming a €100,000 home funding account, 30% discount = €70,000 are taxed at once, since you probably still receive a normal pension, it currently calculates with 42% tax rate; that’s a hefty €30,000 (which you must pay at once). If you assume that after 35 years the €2100 subsidy was used, then there are €107,000 in the home funding account. (Of course, you can also spread the full amount over 20 years and then probably pay around €2,000-2,200 annually.)

I don’t understand your calculation. The amount paid out goes into the home funding account. So €23,000. This is compounded at 2% annually until retirement. Assuming 30 years until retirement, that rounds up to €42,000. How do you arrive at €100,000?

You can tax the €42,000 once with a discount as you described, or spread it over 20 years. Let’s assume the spreading option: Your taxable income increases by €2,100 per year. (You don’t pay €2,100!) It’s also nonsense to do your model calculation with today’s top tax rate of 42%. How many pensioners actually fall into the top tax bracket with their pension? (If you do, these small amounts won’t bother you.) A more realistic tax rate is about 15%. That results in an annual tax burden of €315.

But beware! That’s €315 in 30 to 50 years, so not comparable to €315 today. For simplicity, we remove the compounding of the home funding account (which practically represents inflation). Based on €23,000, that results in an annual tax burden (assuming an average 15% tax rate) of €172.

So at retirement you pay an amount equivalent to €172 per year today. This all doesn’t sound as dramatic as the numbers above. (For completeness, if you pay the full amount at retirement in one lump sum, that would be €2,415.)

Of course, this is based on 2-3 assumptions. But all are realistic from today’s perspective. With any financing, you also make assumptions and don’t have a crystal ball.

If I made any mistake, I’m happy to be corrected.

thank you for your answers. If two experts are already arguing here, then it simply is not a proper retirement provision. Another question: If we cancel the contract, do we simply get the investment costs, meaning the payments, back?