How is the Frühstart-Rente taxed?

Tilman Freyenhagen

Published on 29 July 2026 · Updated on 7 August 2026 · Managing Director & Partner, Alsterspree Verlag GmbH

How is the Frühstart-Rente taxed?

The basic principle of the Frühstart-Rente: tax deferral until retirement

So far, the Frühstart-Rente exists only as a key-points paper of the federal government; the draft law has been announced for 2026 but not yet passed.^[14] Under these key points, returns and gains in value within the Frühstart-Rente are to stay tax-free throughout the entire contribution phase; taxation is to take place only later, in a deferred way, during the payout phase in retirement.^[1] Because of this deferred-taxation system, the tax authorities do not reach into interest, dividends or capital gains every year, so the invested capital can grow for decades without any Abgeltungsteuer being deducted.

The effect of tax deferral on compound interest

While returns in conventional accounts are taxed every year at the 25 percent Abgeltungsteuer plus the solidarity surcharge, the state is to defer the tax liability on the Frühstart-Rente until retirement. All returns therefore flow back into the investment portfolio undiminished. Over the long investment horizon from childhood to retirement, this tax deferral has a substantial leverage effect on the final capital.

The final taxation in retirement is to take place at the individual income tax rate applicable at that time. Because this rate is usually lower in retirement, once earned income falls away, than during working life, savers benefit from a double relief. Note: all worked examples are for illustration; this does not constitute investment advice within the meaning of § 1 Abs. 1a Nr. 1a KWG.

The contribution phase in detail: tax-free returns and state contributions

During the contribution phase of the Frühstart-Rente, families benefit from a consistent tax exemption on all ongoing returns.^[3] The state is to pay a monthly premium of 10 euros (120 euros a year in total) directly into the chosen Altersvorsorgedepot for eligible children from their 6th until their completed 18th year of age. In addition, parents, grandparents or other relatives are to be able to make voluntary own contributions of up to 6,840 euros a year.^[3] All funds paid in this way, as well as all gains generated, are to grow tax-free over the full decades until retirement.

Systematic comparison: no more Abgeltungsteuer or Vorabpauschale

In a conventional Juniordepot (a standard children's investment account), investment income such as dividends, interest and realised capital gains is subject to the standard 25 percent Abgeltungsteuer (plus solidarity surcharge and, where applicable, church tax) once the annual Sparer-Pauschbetrag (the saver's tax-free allowance) is exceeded. In addition, the Vorabpauschale (advance lump-sum tax) applies to accumulating funds and ETFs, forcing a minimum annual tax on notional returns. In the subsidised Altersvorsorgedepot, these tax deductions are waived without exception throughout the entire contribution phase. Neither dividends nor accumulated gains in value trigger a tax liability.

• State subsidy building block: with 10 euros a month over twelve years, the federal government lays a reliable foundation of 1,440 euros in basic subsidy overall.
• Gross reinvestment of returns: dividends and distributions flow back into the account in full — 100 percent — without any capital gains tax being deducted.
• Exemption from income tax on returns: gains in value from accumulating funds stay tax-free during the contribution phase, even as the base interest rate rises.
• Maximised compound-interest effect: untaxed returns generate a noticeable compound-interest advantage over the decades before deferred taxation in retirement.

Through the consistent deferral of the tax burden, the Frühstart-Rente's invested assets grow undisturbed during the crucial first decades. Only once the payout phase begins in retirement do the statutory taxation rules apply, at a point when the personal tax rate in retirement is usually markedly lower than during working life. This structure ensures compound interest can unfold its full effect for the child. Not investment advice within the meaning of § 1 Abs. 1a Nr. 1a KWG.

Top-ups from parents: additional payments and tax-free maximums

In addition to the monthly state starter subsidy of 10 euros, parents, grandparents or other relatives can pay voluntary own contributions into the child's Altersvorsorgedepot. An annual maximum of up to 6,840 euros applies here.^[5] We analyse the tax framework around these additional payments for you, to ensure maximum transparency all the way through to retirement later on.

Gift-tax allowances and contribution limits

From a gift-tax perspective, voluntary additional payments from parents to their children are generally unproblematic. Under § 16 ErbStG (the Inheritance and Gift Tax Act), each child is entitled to a personal allowance of 400,000 euros from each parent within a ten-year period. Even at the maximum additional payment of 6,840 euros a year, this allowance is nowhere near exceeded.^[6] For payments from grandparents, the same section provides a ten-year allowance of 200,000 euros per grandchild.

Systematic distinction and documentation

• Subsidised own contributions: amounts paid under the state allowance and Sonderausgabenabzug subsidy are subject to full deferred taxation under § 22 Nr. 5 EStG when paid out.
• Unsubsidised additional payments: amounts that flow into the account beyond the state-subsidised maximums (up to a maximum of 6,840 euros a year) count as unsubsidised pension contributions.
• Complete documentation: the account provider keeps two separate accounting records for each child. This complete record-keeping ensures the unsubsidised portion of capital is treated favourably for tax purposes in the payout phase, so that no double taxation arises.

All gains in value and dividends within the account are to remain completely tax-free throughout the entire contribution phase. As we show in our analyses for families with children, the combination of the state starter subsidy and private top-ups provides a predictable basis for long-term wealth building (not investment advice within the meaning of § 1 Abs. 1a Nr. 1a KWG.).

Capital lock-up and access restrictions until retirement

The state-subsidised Frühstart-Rente is to be governed by a principle of strict legal earmarking. Unlike an ordinary Juniordepot, where young people can freely access the balance once they come of age, the capital in the Altersvorsorgedepot is generally tied up until the regular retirement age is reached. In return, the key points provide that all capital gains and dividends are to remain completely tax-free throughout the decades-long contribution phase.^[8]

Consequences of harmful use and exceptions

If you, or your child once grown up, withdraw the capital early, this is to be treated as a use that forfeits the subsidy under § 93 of the Einkommensteuergesetz (EStG, the Income Tax Act). Far-reaching consequences would then apply: all state allowances received over the years, as well as the tax benefits granted, would have to be repaid in full to the Zentrale Zulagenstelle für Altersvermögen (ZfA, the central pension allowance office). In addition, the accumulated returns would be taxed on a deferred basis in the year of payout. A look at the statutory details of an early payout shows that an unplanned withdrawal brings substantial losses in return.

• Statutory payout lock: the accumulated pension assets remain legally protected and tied to the retirement purpose until the regular retirement age (from 65 years).
• Exceptions that do not forfeit the subsidy: transferring to another certified Altersvorsorgedepot, or using the capital for the state-subsidised home-ownership pension (Eigenheimrente), are both legally permitted.
• Clawback of the subsidy on cancellation: on a harmful termination, the state reclaims all allowances and tax benefits and taxes the remaining growth in value.

For you as a parent, this creates a clear strategic trade-off: while a flexible Juniordepot is well suited to your child's medium-term goals such as a driving licence, training or their first home, the Frühstart-Rente functions as a highly protected building block for later retirement provision. We recommend deliberately combining both forms of provision, to bring together flexibility in the early years with optimal state subsidy for retirement.

Frühstart-Rente versus Juniordepot: a direct comparison of tax treatment and flexibility

When it comes to providing for children, parents face a fundamental choice between the classic Juniordepot and the state-subsidised Frühstart-Rente. While the Juniordepot is built around short- to medium-term flexibility, the Frühstart-Rente pursues the goal of decades-long, protected capital formation for retirement. The tax distinction is clear: returns in the Juniordepot benefit from the annual Sparer-Pauschbetrag (saver's tax-free allowance) of 1,000 euros^[10] and a Nichtveranlagungsbescheinigung (NV-Bescheinigung, a certificate of non-assessment), but are subject to Abgeltungsteuer once these are exceeded. In the Frühstart-Rente, by contrast, all gains in value and returns are to stay completely free of Abgeltungsteuer throughout the contribution phase.^[11]

Decision criteria for parents: earmarking versus flexibility

When making this decision, parents should take into account the functional difference between the two models. A Juniordepot is excellent for building up starting capital for a driving licence, university studies or a first home. However, ownership automatically passes to the child once they come of age, which carries the risk of the funds being used for something else early on. The Frühstart-Rente protects the pension assets from early withdrawal through a statutory lock-up and relies on the principle of deferred taxation. In practice, the two building blocks complement each other ideally: the Juniordepot secures the start of adult life, while the Frühstart-Rente lays the foundation for lifelong retirement provision.

The payout phase in retirement: how the pension benefits are taxed

Once the child later reaches retirement, the principle of deferred taxation is to apply. While gains in value and dividends stay completely tax-free during the decades-long contribution phase, the payouts in retirement are subject to tax.^[12] All benefits based on state-subsidised contributions and allowances are to be taxed at the individual income tax rate under § 22 Nummer 5 EStG. Because the personal tax rate in retirement is usually lower than during active working life, savers benefit from a noticeable tax shift.

To work out the exact tax burden in retirement, the tax office distinguishes precisely between subsidised and unsubsidised portions of the contributions. If, alongside the state contributions, unsubsidised own contributions above the subsidised maximum were also paid into the account, only the returns portion is taxed on payout. This consistently avoids double taxation of capital that has already been taxed. How the Altersvorsorgedepot is taxed in detail therefore depends significantly on your individual subsidy rate.

Both with the flexible drawdown plan and with lifelong annuitisation, returns stay fully protected from the annual reach of Abgeltungsteuer until retirement. For parents, this basic principle means: the Frühstart-Rente combines maximum compound-interest effects in the early years with orderly tax treatment in retirement. Please note: all information here is for neutral information purposes. Not investment advice within the meaning of § 1 Abs. 1a Nr. 1a KWG.

A seamless transition at 18: from a children's account to your own Altersvorsorgedepot

Once the child comes of age, the Frühstart-Rente undergoes an organisational and tax transition: legal ownership of the Altersvorsorgedepot passes from the parents to the now-adult child. In reforming private pension provision, close alignment with the Frühstart-Rente has been built in, so that a seamless transition from the Frühstart-Rente into private pension provision is possible later on.^[13] All capital returns accumulated up to that point remain tax-free in the account and are not subject to any Abgeltungsteuer on the transfer either.

Steps and subsidy building blocks from the age of majority

• Taking over the contract: on completing their 18th year of age, the child becomes the sole party to the contract and takes over control of the contribution payments and the investment.
• Activating the starter bonus: anyone who takes over or continues a subsidised contract before their 25th birthday receives a one-off Berufseinsteigerbonus (career-starter bonus) of 200 euros as additional state support.
• How the Grundzulage works: own savings contributions from the start of an apprenticeship or degree are subsidised directly through the percentage-based Grundzulage (basic allowance), under which 50 cents of allowance flow for every euro paid in, up to 360 euros.
• Ongoing tax exemption: no income tax is due throughout the rest of the contribution phase, allowing the compound-interest effect to work without restriction.

For young adults, this transition forms the foundation of an independent pension strategy. Because the pension assets stay tied up until retirement, the tax-free growth continues seamlessly before deferred taxation applies in the later payout phase.

Strategic guidance for families: which model fits your pension goals

When it comes to securing children financially, parents often face a trade-off between flexible availability and maximum state family support. While classic Juniordepots allow unrestricted access before the 18th year of age, the state Frühstart-Rente system, and the later Altersvorsorgedepot, score through complete tax exemption of capital returns during the contribution phase^[14]. In practice, a balanced provision strategy combines both approaches: flexible investment forms cover interim goals such as a driving licence or training, while subsidised pension accounts lay the foundation for tax-optimised retirement provision.

Three steps to the right children's pension strategy

• Structure your goals and liquidity: draw a clear line between short-term capital needs and the long-term earmarking. Capital in the Frühstart-Rente stays tied up until retirement begins, but offers maximum tax benefits in return through deferred taxation.
• Simulate the state subsidy: use the subsidy calculator to work out your individual subsidy rate, allowance entitlements and final capital development on a source-based basis (an illustrative example calculation, not investment advice within the meaning of § 1 Abs. 1a Nr. 1a KWG.).
• Choose your implementation path: depending on your personal preference, decide between managing the account yourself digitally or seeking in-depth personal advice through our independent advice service for complex family and tax questions.

Choosing the right provision model depends significantly on family circumstances, income levels and the intended investment horizon. Through the planned close integration of the Frühstart model with private pension provision, the aim is to ensure that pension assets built up early can transition seamlessly into subsidised adult contracts. A structured comparison helps parents make full use of state allowances without losing sight of the financial flexibility needed in everyday family life.