The moment your ETF portfolio crosses the €100,000 mark, a peculiar anxiety creeps into German investment forums. Suddenly, you’re bombarded with advice to stop investing in your current fund and start a “fresh” one. The reasoning? FIFO, First In, First Out accounting, and the supposed tax drag it creates on your wealth. But before you start shuffling your investments, let’s dissect whether this strategy holds water under German tax law or if it’s just another Finanzmythen (financial myth) that refuses to die.
The FIFO Principle: Why Your Oldest Shares Haunt You
In Germany, capital gains from ETFs fall under the Abgeltungsteuer (withholding tax) of 25%, plus Solidaritätszuschlag (solidarity surcharge) and potentially Kirchensteuer (church tax). When you sell shares, the Finanzamt (Tax Office) doesn’t let you cherry-pick which ones to unload. The FIFO principle mandates that the shares you bought first are the ones you sell first.
This matters because your earliest purchases typically have the highest gains. A share bought five years ago has compounded far more than one bought last month. Selling €10,000 worth of ETF shares doesn’t mean you’re selling the €10,000 you just invested, it means you’re likely selling ancient shares with massive embedded gains, triggering a larger tax bill than you might expect. This tax drag eats into your compound returns, especially when you need to rebalance or withdraw funds before retirement.
The Mythical €100k Threshold: Origins and Reality
Search German investment communities and you’ll encounter the magic number: €100,000. Cross this threshold, conventional wisdom says, and you should open a new ETF savings plan in a comparable but technically different fund. Yet ask where this figure originates, and the answers dissolve into hearsay. One investor admitted seeing it “a few times” on YouTube and forums without encountering a solid rationale. Another flatly stated they’d never heard of it, pointing instead to the €500,000 threshold for Wegzugbesteuerung (exit taxation).
The €100k figure appears to be a misinterpretation of the Finanztip recommendation to consider resetting FIFO every 10 years, not at a specific portfolio value. The actual number that should concern you is €500,000: your total contributions across all ETFs. Beyond this, Germany’s exit tax rules could treat you as if you sold everything when leaving the country, potentially triggering a massive tax event even if you remain invested. Some forward-thinking investors actually switch funds at €50k contribution levels, fearing this threshold will be lowered as the government seeks additional revenue.
The Depotwechsel Workaround: A Legitimate Loophole
Here’s where German engineering meets tax optimization. You don’t necessarily need to buy a different ETF to reset FIFO. The system allows a clever workaround through Depotwechsel (depot transfer).
Imagine you hold 1,000 shares of the A2PKXG (a popular all-world accumulating ETF) and want to sell the most recent 50 shares to minimize taxes. The process works like this: transfer 950 shares to a different broker, leaving 50 shares in your original account. Sell those 50. When you want to sell the next batch, transfer 900 back and sell the remaining 50. This ping-pong approach lets you effectively sell your newest shares while staying compliant with FIFO within each depot.
The question many ask: does FIFO apply across depots? Yes, it does, within each individual depot. By strategically splitting your holdings across brokers, you gain flexibility. This method keeps you in your preferred ETF without switching to a potentially inferior alternative just for tax reasons.
The Exit Tax Sword of Damocles
The Wegzugbesteuerung (exit taxation) represents the real boogeyman for long-term investors. If you leave Germany permanently, the tax authorities may deem you to have sold your entire portfolio, demanding immediate payment on all unrealized gains. The current €500,000 contribution threshold offers some protection, but savvy investors worry this won’t last.
One strategy involves preemptively selling and rebuying your entire portfolio during a temporary move to a lower-tax jurisdiction. Even a six-month relocation could slash your tax burden dramatically if timed correctly. The €100k switching strategy pales in comparison to this nuclear option, yet most investors focus on the smaller optimization while ignoring the existential threat.
Practical Costs and Considerations
Before you start opening new ETFs or bouncing shares between brokers, run the numbers. Each depot transfer typically costs €15-30 per position. Selling and rebuying triggers the very taxes you’re trying to avoid. Different ETFs, even tracking the same index, have slightly different compositions, creating tracking error and complicating your portfolio management.
The tax drag from FIFO only materializes when you actually sell. If you’re in pure accumulation mode for decades, FIFO doesn’t cost you a single cent. The strategy makes sense only if you anticipate regular withdrawals before retirement age or need liquidity for major life events like property purchases.
Who Should Actually Switch?
Resetting FIFO through a new ETF or depot transfers makes sense for:
– Investors planning partial withdrawals within the next 5-10 years
– Those approaching the €500k contribution limit for exit tax concerns
– People with highly appreciated positions from pre-2018 tax law changes
– Anyone needing portfolio rebalancing that would trigger significant sales
It likely wastes effort for:
– Young accumulators with 20+ year horizons
– Investors using only tax-free accounts like the Grundfreibetrag (basic tax-free allowance)
– Those who’ve already optimized through partial transfers
– Anyone whose total contributions remain well below €500k with no emigration plans
The Bottom Line
The €100k switching rule belongs in the same category as the GEZ-avoidance schemes that circulate in expat WhatsApp groups, technically plausible but practically overblown. The real optimization levers are the depot transfer strategy and exit tax planning, not arbitrary portfolio value thresholds. Before complicating your investment life, calculate your actual expected tax drag based on realistic withdrawal scenarios. Sometimes the simplest strategy, staying the course, outperforms the cleverest tax hack.
Your time is better spent monitoring your contribution totals against that €500k exit tax threshold and keeping your broker relationships flexible enough for strategic transfers. The German tax system rewards patience and punishes complexity for its own sake.
