Accumulating or Distributing? The After-Tax Decision
Since the introduction of the Vorabpauschale (advance lump-sum tax), the old reflex "accumulating = better for taxes" is no longer automatically true in Germany. At a base rate of 3.20%, accumulating funds also incur noticeable tax every year — and for smaller portfolios the saver’s allowance even flips the math. Here is the after-tax calculation hardly anyone does.
The concrete math on a €100,000 portfolio
Accumulating: the Vorabpauschale equals fund value × base rate × 0.7 — on €100,000 at 3.20% that is €2,240. After the 30% partial exemption, €1,568 is taxable, which at 26.375% (flat tax plus solidarity surcharge) means roughly €414 in tax — capped at the year’s actual gain.
Distributing: at a 2% payout, €2,000 flows out; after partial exemption €1,400 is taxable — roughly €369 in tax. The gap is no longer dramatic. The real edge of accumulating funds remains deferral: the Vorabpauschale is lower than full income taxation, the rest only falls due at sale and keeps compounding until then.
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The saver’s allowance: break-even by portfolio size
For smaller portfolios the picture reverses. If you do not use your saver’s allowance (€1,000, €2,000 for married couples) elsewhere, you waste it — and distributions fill it automatically with tax-free income every year. Rule of thumb: at a 2% distribution yield and 30% partial exemption, the allowance fully covers payouts from roughly €70,000 of portfolio value (married: around €140,000).
- Below break-even: distributing funds harvest the allowance in full — every euro received tax-free today beats the deferral effect.
- Above break-even: the accumulating fund increasingly wins, as deferral on retained earnings compounds substantially over 20 years.
- Pragmatic middle ground: distributing up to the allowance threshold, accumulating above it — or switch your savings plan once break-even is reached (no need to sell existing units, given FIFO).
| Criterion | Accumulating | Distributing |
|---|---|---|
| Ongoing tax | Vorabpauschale (~€414 per €100k) | On payouts (~€369 per €100k at 2%) |
| Saver’s allowance | Only used via Vorabpauschale | Automatically used every year |
| Deferral effect | Strong — main tax only at sale | Minor |
| Reinvestment | Automatic inside the fund | Manual (possible order fees) |
| Best from | ~€70,000 portfolio value | below that, or when income is needed |
Frequently asked questions
Is the Vorabpauschale due every year?
Only in years with a positive return and a positive base rate. It is capped at the actual gain and credited against tax at the eventual sale.
From what portfolio size does accumulating win?
As a rule of thumb from around €70,000 (€140,000 married) at a 2% distribution yield — then the allowance is exhausted and deferral dominates.
Should I swap existing distributing funds for accumulating ones?
Usually no: selling taxes the oldest, highest-gain units first under FIFO. Better to redirect the ongoing savings plan and keep the existing position.
Forecasts and simulations based on your actual portfolio instead of sample values – free with MoneyPeak.