In this article on “How to Report IRA and ROTH IRA Accounts in Spain? we will analyze how IRA and ROTH IRA accounts are taxed under IRPF and Wealth Tax, and whether they need to be reported in Form 720.
Obligation to Report on Form 720
An American citizen who is a tax resident in Spain and holds two financial products from the U.S. called IRA and ROTH IRA, to which they make contributions, is now retired and considering withdrawing the value of these accounts, must declare their value at the end of the year on Form 720.
Considerations for IRA and Roth IRA
According to the IRS’s definitions, these financial products may initially be considered foreign pension plans. Based on this, and following repeated rulings from the Spanish Tax Agency (AEAT) such as VI681-13, VI821-15, V0497-18, and VI049-19, it is stated that “consolidated rights in a foreign pension plan are not included in any category of foreign assets mentioned in the 18th Additional Provision of the General Tax Law (LGT) and Articles 42 bis, 42 ter, and 54 bis of the General Regulation on Taxation (RGAT).”
As a result, there should be no obligation to report these, if no event triggering the pension plan’s benefits has occurred, unless the foreign pension plan allows a life insurance-style payout and since this is the case, the account would need to be reported in accordance with Article 42 ter, Section 3 of the RGAT.
Since IRA and ROTH IRA products allow withdrawals at any time (even if this doesn’t trigger a tax penalty), it can be concluded that the taxpayer has a right to withdraw similar to a life insurance policy. Therefore, even if no event has occurred that would trigger a payout from these accounts, the taxpayer must report them according to Article 42 ter of the RGAT.
Impact on IRPF (Income Tax)
According to information on the IRS website, IRA and ROTH IRA accounts have specific features:
- IRA (Individual Retirement Arrangement): This is an employment-linked savings product that allows for tax-deferred investments to provide financial security during retirement. Contributions to traditional IRA accounts are tax-deductible in the U.S., and withdrawals can be made at any time, but must be made by age 72 (or 70.5 before January 1, 2020). Withdrawals, whether they are from contributions or earned income, are subject to tax in the U.S., with an additional tax penalty if withdrawn before age 59.5.
- ROTH IRA: This is a non-employment-linked savings product, where contributions are not deductible in the U.S. Withdrawals can be made at any time without being taxed, if they meet certain conditions: the account must be open for at least 5 years, and the individual must be at least 59.5 years old. Early withdrawals (before age 59.5) are subject to tax penalties.
As a tax resident in Spain, an individual will be taxed on their worldwide income, regardless of where the income is generated or where the payer is located, according to Article 2 of Spain’s IRPF Law (35/2006).
Application of the Double Taxation Treaty
According to the Spain-U.S. Double Taxation Agreement, public pensions from the U.S. linked to employment will be taxed in the U.S. under Article 21 of the treaty. The amounts received from an IRA, because of services performed by the individual, will be taxable only in the U.S. and thus exempt from Spanish IRPF.
For the ROTH IRA, since it is not tied to employment and contributions come from the individual’s personal savings, it falls under Article 23(1) of the treaty, which states that such income can only be taxed in the individual’s country of residence (Spain) and is classified as investment income. As a result, ROTH IRA distributions are taxed as capital income in Spain.
Wealth Tax Impact
Regarding the Wealth Tax, it is regulated by Spain’s Wealth Tax Law (19/1991, June 6). This tax applies to the net wealth of residents in Spain, meaning the total value of assets and rights, regardless of where they are located. Both IRA and ROTH IRA accounts are considered financial assets and should be included in the taxpayer’s net wealth for Wealth Tax purposes.
If you have any doubt, please do not hesitate to contact us US Tax Consultants
A Traditional IRA contains pre-tax money. How can Spain claim the full value is wealth, when the actual value to the owner of the IRA is the account value minus the tax that has to be paid when money is withdrawn from the account?
“I’m not sure if I can answer this question because I’m not sure I understood it correctly… If we’re talking about the wealth tax, which as we know doesn’t exist in the USA but does exist in four OECD countries—Colombia, Norway, Spain, and Switzerland—it’s calculated based on the value of a taxpayer’s assets as of December 31 of a given year, regardless of any other taxes paid or unpaid. I have no intention of defending this tax, but that’s the way it is, just like a primary residence is exempt up to a maximum amount of €300,000. And why is that? Since it’s also an asset.”
Hola Antonio,
Tengo duda de si tengo que presentar mi 401K en el modelo 720 dentro del apartado “V” subapartado 2 (cesión a terceros de capitales propios” o “I”.
Tengo 35 años y todavía no he tocado mi 401k, pero estoy leyendo que tengo que declararlo en este modelo.
Muchas gracias
Joshua, lo del 720 es otro cantar… si es claro que hay que incluirlo en el 720, pero necesitaría bastante mas tiempo para entrar en la discusión sobre como decláralo… como ya he dicho en otro post, mi sugerencia es que llames a Hacienda y se lo preguntes, pero independientemente de que la respuesta te guste o no, que no se te ocurra llamar de nuevo, porque lo mas normal es que te den otra respuesta y me imagino que tu confusión va a ser mayor. Gracias por escribir en español…
Of course, if we’re talking about the Modelo 720, it’s important to remember that it’s only an informational declaration, no taxes are paid on it, and it must be declared, including both the IRA and Roth IRA, as part of your assets outside of Spain.”
Does Spain tax capital gains and dividends within a traditional IRA even if no withdrawal/distribution is made? Also, does the over 65 years old rule on capital gains from the sale of a house include houses sold outside of Spain? Gracias!
No, Spain only tax capital gains and dividends from an IRA when withdrawal/distribution are made.
It’s not clear from the article whether capital gains within IRAs are taxed as well (in which case it will be double taxation – both on gains and upon withdrawal).
Does Spain tax gains within IRA if funds are not withdrawn?
You are right! I have read the post again and it is not clear at all… I might edit it later for future readers.
IRAs are taxed in Spain as earned income on the distributions. And Roth IRAs are taxed also as earn income, but only on the distribution’s gains, according to the FIFO calculations; the capital has already paid taxes, so you do not need to do it again, it will be like a brokerage account.
No, to your second question… if there are not distributions you do not have to pay taxes in Spain. You only pay taxes on the distributions.
If I sell a stock from my Roth with the proceeds going to my regular bank account for $200 and I bought it (the stock ) for $100, are there taxes on $200 or $100?
Assuming that there have not been any other transactions in between, you will be paying taxes over the gains, so $100. Remember, if you have had other transactions, selling and buying stocks, you must calculate the value of the gains with the FIFO method.
When you say “ROTH IRA distributions are taxed as capital income in Spain” does this mean that the gains in a ROTH are taxed when distributed or is the entire distribution taxed? Thank you very much.
Thank you for the question, I mean that the gains in a ROTH are taxed when distributed.
Thank you so much for this article! If you don’t mind answering–how would a conversion from tIRA to Roth IRA be treated in Spain? As earned income and taxed accordingly? Or would it be considered foreign earned income and exempt from Spanish tax up to 60,100€? Thanks!
It will be taxed as earned income and taxed accordingly.
Thank you for the question!
Thanks for the article, although some of this information seems inaccurate, but I think it’s Hacienda’s fault.
Reading case V1291-22: https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=V1291-22
As you point out, Hacienda claims that a traditional IRA is employment-based and a Roth IRA is not.
“Respecto del producto denominado IRA tradicional, parece tratarse de un producto de ahorro vinculado al empleo del consultante como funcionario de los Estados Unidos”
…”En cuanto al producto denominado ROTH IRA, es igualmente un producto de ahorro, pero, en este caso, no vinculado al empleo del consultante”
However this is wrong.
IRAs (both Roth and traditional) are “Individual Retirement Arrangements”. They are not tied to a particular employer, you contribute to them on your own as long as you are employed and earning income. 401(k) accounts are tied to your employer (sometimes your employer contributes to the fund too), IRAs aren’t.
Roth IRAs are regulated by section 408A of the Internal Revenue Code (IRC). Traditional IRAs are also regulated by section 408.
These plans ARE considered pension funds according to the 2019 USA-Spain tax treaty ammendment:
https://www.boe.es/boe/dias/2019/10/23/pdfs/BOE-A-2019-15166.pdf
“(a) En el caso de los Estados Unidos, la expresión «fondo de pensiones» comprende los siguientes:
(…) un plan de pensiones calificado conforme al artículo 401(a) del Internal Revenue Code – IRC (que incluye los planes comprendidos en el artículo 401(k) del IRC)
(…) os fideicomisos que constituyan una cuenta individual de jubilación conforme al artículo 408 del IRC, los planes de jubilación individual tipo «Roth» conforme al artículo 408A del IRC”
This last line is referring to traditional and Roth IRAs.
So when Hacienda says, in case V1291-22, that Roth IRAs aren’t pension funds I’m not sure what they are talking about. Here is what they said:
“Y en relación con el producto ROTH IRA, según las manifestaciones del consultante el citado producto no estaría vinculado a un empleo, sino que las aportaciones proceden de los ahorros del consultante mientras estuvo trabajando.
Al caso será de aplicación el artículo 23 del Convenio, a cuyo tenor:
“1. Las rentas de un residente de un Estado contratante, cualquiera que sea su procedencia, no mencionadas en los artículos precedentes de este Convenio, sólo pueden someterse a imposición en ese Estado.”
They make it seem like Roth IRAs are not mentioned in the Treaty and therefore they are taxed exclusively in Spain. But they are mentioned, and the treaty says they are considered pension funds in the US, so I think they should be treated as such and should not be taxed?
What do you think Antonio, is Hacienda not properly identifying that when the 2019 treaty amendment mentions the section 408A of the IRC, that is referring to Roth IRAs as pension funds?
I love your reply. I literally came to the same conclusions and have the same questions like you this very week.
I would like to connect, can you send me your email to cesartolico@gmail.com?
I am going to have a consultation with someone and I would like it if you join, I like the way you think.
Cesar, I would love to joint you if it is not too late… my email is arodriguez@ustaxconsultants.es
Hi Antonio, you wrote: “According to the Spain-U.S. Double Taxation Agreement, public pensions from the U.S. linked to employment will be taxed in the U.S. under Article 21 of the treaty. The amounts received from an IRA, because of services performed by the individual, will be taxable only in the U.S. and thus exempt from Spanish IRPF.”
So if my IRA account contains funds that were contributed by my government (non private) employer, then it’s considered a government pension, not a private one, and thus withdrawals are NOT taxed as income in Spain, only in US, correct? Thanks.
If you are an expat living in Spain and you are planning to retire in Spain, why would you even consider a ROTH IRA? The way I understand it is that distributions on ROTH IRA are taxed as capital income in Spain. This undermines the value of a ROTH IRA in a first place, since in the USA this will not happen. Right?
Under the treaty, Traditional IRA distributions are exempt from Spanish taxes (IRPF), making them more favorable. Additionally, U.S. federal tax (no state taxes) on Traditional IRA withdrawals is significantly lower than Spain’s capital income tax rates. Roth IRA withdrawals are taxed in Spain as investment income, eroding the tax-free benefit enjoyed in the U.S.
Thanks very much for your post. It is usually really difficult to answer some questions because each person has a situation that makes them different from the next person and you cannot generalize and that is why the binding questions from the Treasury refer only to the case they are analyzing with the corresponding particularities. Definitely, the benefits and advantages of a RothIRA in the USA do not have to be maintained in Spain, it is about different legislations and in fact the treatment is different. Although the Double Taxation Treaty establishes where taxes must be paid according to the different types of income, the most important thing is that in Spain the Spanish legislation must be applied, which always refers to residents and in the USA the American legislation must be applied and normally refers to US Persons (US citizens, Green Card holders and Resident Aliens).
So, I agree with your first paragraph and it seems correct to me.
Regarding the beginning of your second paragraph, I do not agree, or at least it needs to be qualified. The only distributions exempt from the IRPF are those from Public Pensions (this is what the treaty says), as long as the Taxpayer is not Spanish and anyway the amount must be considered to calculate the Tax Rate of the rest of the income. As the article says, traditional IRA annuities are linked to your earned income and therefore pay taxes according to the “general tax base”, and in the case of the RothIRA, taxes will be paid on increases in value on the capital deposited, not on the total amount of the distribution, what in Spain is called the “savings base”.
And yes, “Roth IRA withdrawals are taxed in Spain as investment income, eroding the tax-free benefit enjoyed in the U.S.”
Muchas gracias
So confused by all of this. Is the following correct:
1-Roth IRAs are seen by Spain as investment accounts and so one is taxed in Spain on the basis of capital gains, but not taxed in the US.
2-Traditional IRA distributions are taxed as income.
3-401ks are tied to a specific employer so distributions are not taxed by Spain.
Thanks all.
Please give me a couple of days to answer the previos posts and I hope that helps you.
1- Roth IRAs are seen by Spain as investment accounts and so one is taxed in Spain on the basis of capital gains, but only on the income generated, since contributions came from funds already taxed, but not taxed in the US.
2- Traditional IRA distributions are taxed as income. The same as the 401K
3- The only pensions exempt from taxation in Spain are the US Public Pensions
4- and U.S. Social Security Benefits are texed in Spain as income on the 100% of the gross income
Sorry, I’m a bit late to this conversation. Since I have a significant portion of my retirement accounts in Roth IRAs I want to make sure I understand.
Scenario: Assume I have $2M in a Roth IRA and the Roth IRA earns $50k in interest and dividends and $125k in capital gains in a given year. However, I make no withdrawals from the Roth IRA in that year. Does Spain tax the interest, dividends, and capital gains from the Roth IRA? If it does not, then it doesn’t really consider the Roth IRA as a normal investment account given that Spain taxes interest, dividends, and capital gains for any given year in normal investment accounts. Can you clarify? Thanks!
I am sorry too! I am not sure if you get a 1099INT, or 1099div form your rothIRA, I am not aware of it! Do you get them every year? I am a bit confused… if you want, please book a free consultaion with me and I will do my best to clarify the issue.
Hi Antonio, we spoke at 18:30 on December 11. I read through everything and I want to make sure my understanding is correct for American citizens reisding in Spain.
-IRA/401K: never taxed by IRPF (neither realized capital gains without distributions nor income from distributions), always taxed by wealth tax.
-ROTH IRA: always taxed by wealth tax. Realized capital gains (selling stocks to buy different stocks) without distributions are not taxed by IRPF. Distributions when you withdraw from the account are taxed as ordinary income by IRPF.
Also, in one of your comments you wrote “if we’re talking about the Modelo 720, it’s important to remember that it’s only an informational declaration, no taxes are paid on it.”–Are you implying that there are situations where you would report an asset but NOT HAVE TO pay wealth tax on it?
Jordan, I am so sorry, but it seems to me that I did not explain my self correctly. There are three different and independent reports or tax returns in Spain: Modelo 100 IRPF, Modelo 714 Weah Tax and Modelo 720 assets abroad, which is only an information rerun, no taxes involved.
-IRA/401K: are always taxed by IRPF as earned income. You must also report it in the Wealth tax (714) and pay taxes if it corresponds to your assets’ situation. You must also include it in the list of assets abroad (720) in the second section, investments.
-ROTH IRA: only taxed on the realized capital gains and taxed as “base del ahorro” not as earned income. You must also include it in your 714 and 720.
-The 720 is the only declaration that does not imply to pay taxes, it is only an information report.
I hope that it is clearer now.
Thank you Antonio. The only doubt that remains for me is how the income/savings tax works on the IRA and 401k. Assuming that I am not of retirement age and I am not going to withdraw funds from these accounts but I am going to sell stocks and to buy more stocks within the account. Do I pay taxes on these stock sales or not?
It’s astounding that we can’t get a consistent and straight answer on retirement taxable incomes in Spain. The internet is buzzing with confusing and contradictory answers depending on whom you ask. I realize Spain doesn’t have the complicated retirement schemes we have in the USA but I would think enough Americans have retired in Spain to have a consistent answer from the Spanish tax authorities.
I’m a high income individual (greater than 100K€/year) and I’m considering retiring in Spain but I need to know whether I will be taxed on my retirement income in Spain or not and how. My income streams are very straight forward and simple; social security benefits (SSB) and distributions from my 401(K) account. My SSB will be taxable at 85% of the annual amount paid (top tier) and my 401(K) distributions are taxed as ordinary income.
So, for my benefit and all others who have the same questions let me try it this way and see if we can get a simple and comprehendible answer to this perpetual question:
1. Social security benefits (SSB) in the USA are taxable if a taxpayer’s combined income meets certain dollar thresholds. For single filers this is; less than $25,000, no federal taxes; $25,000 to $34,000, up to 50% of SSB may be taxable by the federal government; more than $34,000 up to 85% may be taxable by the federal government. For married filers filing jointly the dollar thresholds are: $32,000, $32,000 to $44,000, and more than $44,000 accordingly. Thirty eight (38) of the 50 US states do not tax SSBs. Twelve (12) do. I live in one of the 38 states.
Question A: Are SSBs taxable in Spain as income or are they treated as public pensions and therefore not taxable?
Question B: Does Spain recognize these thresholds cited above?
Question C: If the answer to Question B is no, how is SSB taxed? As ordinary income or is a lower tax rate applied?
2. I have a 401(K) account which is related to my past employment and is a tax deferred account (I pay taxes on amounts I withdraw). I have been withdrawing from it over the past year. All distributions are taxed in the US by both the federal and state governments as ordinary income.
Question A: Does Spain consider my 401(K) account as a pension plan? Since it is related to earned income while I was employed?
Question B:If the answer to question 2A (above) is yes, are my 401(K) distributions treated as tax exempt income in Spain since it is taxable in the US and taxes are paid on them there?
Question C: If the answer to question 2A (above) is no, meaning it is not considered a pension plan, how are such distributions taxed in Spain? As ordinary income? Or another type of revenue stream and different tax rate?
Chad, thank you for summarizing your situation with some questions, because it makes much easier for me to get “a simple and comprehendible answer to this perpetual question”
Question 1.A: Are SSBs taxable in Spain as income or are they treated as public pensions and therefore not taxable?
SSB is taxable in Spain 100% as ordinary income.
Question 1.B: Does Spain recognize these thresholds cited above?
NO.
Question 1.C: If the answer to Question B is no, how is SSB taxed? As ordinary income or is a lower tax rate applied?
As ordinary income.
Question 2.A: Does Spain consider my 401(K) accounts as a pension plan? Since it is related to earned income while I was employed?
NO. According to the Spanish Law (Royal Legislative Decree 1/2002, of November 29, approving the consolidated text of the Law on the Regulation of Pension Plans and Funds, nor those regulated in Directive (EU) 2016/2341 of the European Parliament and of the Council, of December 14, 2016, regarding the activities and supervision of occupational pension funds) a 401K it is not considered a Pension Plan from the fiscal point of view, and it is treated as ordinary income.
Question 2.C: If the answer to question 2A (above) is no, meaning it is not considered a pension plan, how are such distributions taxed in Spain? As ordinary income? Or another type of revenue stream and different tax rates?
I think it has been answered in your previous question.
If you would like to discuss this subject in depth we me, I would love it if you ask for a free consultation with me (Antonio Rodriguez), through our website and I will probably be able to get for you the source of the information from the AEAT.
https://outlook.office365.com/book/USTaxConsultants1@ustaxconsultants.net/
Thank you very much for responding to my questions so quickly. It confirms what I already had learned through other sources. Confirmation is always good.
I tried to make an appointment with you on your website but any day I picked wasn’t available! Please advise if there is another way to meet with you online. Tax planning is what I’m interested in. Please send your response to my email which you already have.
Thanks
What if the social security was gained from federal employment, would it be taxed by Spain? Also, are withdrawals from Thrift Savings Plan (only for federal employees) taxed by Spain?
I am sorry, Social Security Benefits are considered similar to private pension, they are taxed in Spain 100%. pension received by federal employees are exempt of taxation in Spain.
Hi Antonio,
I’m very happy to find someone who knows our IRAs and could answer concisely questions about them. I’m also planning to retire overseas and Spain is 1 of my top destinations and it comes down to taxes. I’ve done a lot of research on taxation in Spain and several other countries since I have a comfortable net worth. 90% of my liquid assets are held in IRAs. So let me know whether I understand it correctly and what I’m going to do makes sense:
1. Roth IRA – Since this will be taxed in Spain as general income, I’ll transfer all to my regular brokerage acount. There’s no tax on the transfer in the US and I don’t plan to be a tax resident of Spain this year so there’s no tax in Spain either. All the dividends and capital gains will be taxed in Spain based on its capital gain tax rates next year.
2. Traditional IRA- Here I have questions:
a. Above, you seem to say US will be the one who taxes my withdrawals per treaty. Is that correct?
b. If it’s Spin taxes my withdrawals, are all withdrawals taxed as general income?
c. Will Spain tax any dividends or interest income received in the account even if I don’t withdraw? (Note: There won’t be any wealth tax because I intend to live in Andalusia and my overall net worth is <3M euros.)
If Spain is the one taxes withdrawals from Traditional IRA, I plan to transfer as much Traditional IRA to my regular brokerage account as tax effective this year.
With all the money transferred, the proceeds from my house sale, interest income/dividends from investments and
monthly SSB, I won't need to withdraw from the rest of my Traditional IRA for a long time, especially if I rent instead of buying.
Let me know. Thanks!
JC,
1. Roth IRA is taxed, but only on the gain that you might have had. The amount corresponding to the contributions is no taxed. Your suggestion of the transfer seems to me a good idea.
2a. Spain will tax you withdraws, and you can compensate the taxes in the US with the “Foreign Tax Credit”
2b. Yes, they will be taxed as earned income.
2c. Will you receive a 1099 with the INT and DIV? in this case yes, it will be taxed in Spain. Andalucia has no Wealth Tax at this point.
It sounds good to me, so you will not pay taxes on the withdrawals.
Thanks for your questions, I hope that they will help others to understand the whole issue.
Quick question about your response regarding the “Foreign Tax Credit”:
Using a tax prep software, I searched for Foreign Tax Credit” and got this: To qualify, you must have paid, or owe taxes on the income to the country where it was earned.
Knowing from your previous discussion, an IRA is considered “Earned Income” in Spain. Can I assume that the money earned was in Spain (even though the money was earned in the US)?
If so, this clears up a lot….
Yes, you are right… only to mention that I would not say that “IRA is considered “Earned Income” in Spain” I would rather say that “IRA is taxed as “Earned Income” in Spain.
If the money is left in Roth IRA, without moving it to an after tax brokerage account, would Spain only tax the Roth IRA gains and not contributions when money is withdrawn in the future as a Spanish tax resident?
Yes, it is correct!
Does the basis for the gain on Roth IRA start when the person becomes a resident or when the money is first invested in the Roth?
When the money is first invested in the Roth
Does it matter that the Roth Ira was created from funds converted from a Traditional IRA that originated while the person was an employee?
It does not matter.
Just to be clear; I had a Roth IRA of $100k when I retired in 2023. It has grown to $150k now in January of 2025 via a series of stock sales/purchases. I will be taxed on the $50k gain over the last year and a half? And can I assume that these gains are only reported once initially, then next year on the gains from the previous reporting?
Thank you John… yes, you will be taxed on the gain, according to the FIFO, which it will not be 50K, and of course if you receive the distribution of all $150K
Great article!
Are contributions to IRA tax deductible to Spain’s IRPF? If you’re not retired yet, then it seems possible that you can get double taxed on your IRA: once at contribution, and once at distribution.
Is the same also true for 401k?
No, they are not deductable in Spain and the reason is explained in the binding question V1291-22.
Antonio,
Regarding your earlier comment:
> 2c. Will you receive a 1099 with the INT and DIV? in this case yes, it will be taxed in Spain.
You don’t receive form 1099 for IRA (or Roth IRA).
So unless I’m mistaken, if you never distribute the capital gains from either IRA or Roth IRA, you shouldn’t be taxed on it by Spain.
Yes, you are completely right!
Good morning! Thanks for all the help. So, to list a Roth on the modelo 720, I assume we would list the specific investments held within the Roth, just as we would if they were regular investments not held in a Roth? I ask because in one of the answers given by Hacienda (the case mentioned in an above comment, V1291-22) relates IRA’s to life insurance (though it’s not specifically saying to list them on the 720 as a life insurance).
I have the feeling that I am losing something… the 720 is merely a report of the value of the IRA, Roth IRA, 401K or any other asset that you might own at December 31, 2024. I think that in the case of the pension plans you do not need to list the individual securities as you do with a Brokerage account.
Thanks for the discussion. Can you clear up this contradiction in your comments? Are Roth IRA distributions taxed as “earned income” (i.e., general taxable income with max tax rate of 47%), or as “investment income” (i.e., savings taxable income with max tax rate of 28%)? Also, can you explain what you mean by “FIFO” with regards to Roth IRA withdraws? In the US, FIFO doesn’t apply to Roth IRA withdrawals. The US IRS says Roth IRA withdrawals follow the order of contributions, then conversions, then earnings. If that order applies to Spanish residents then one could withdraw all Roth IRA contributions first without paying any tax to Spain. Are you saying that US Roth IRA withdraw order does not apply in Spain? If so, it seems like it would be impossible to determine what percent of a withdraw is contributions versus earnings.
I am sorry if I had a contradiction in any of the explanations. Thanks very much for insisting. Roth IRA distributions taxed as “investment income”. IRA distributions are taxed as “earned income” (i.e., general taxable income with max tax rate of 47%).
Kevin, I have just answer a similar stamen… the Roth IRAs are made up of shares that the investing entity buys and sells and the growth of the Roth IRA is based on the fact that sales have a greater value than purchases and the calculation of the benefits, which is the growth, must be calculated using FIFO, which means that whoever wants to do the calculation needs to know the bases and the purchase date of each of the shares that make up the Roth IRA.
Hi Antonio, thank you for all your comments above. I have a couple of questions specific to the Roth IRA that I hope I am not repeating.
When are dividends (or other distributions) that are reinvested in the Roth IRA reported on IRPF? Should this be in the year that they occurred, or when a distribution is taken?
When shares are sold within the Roth IRA (and other shares purchased), should capital gains be reported that year or at distribution? Keeping track of gains on partial distributions seems virtually impossible over time.
Do Roth IRA’s need to be reported at the share/lot level on 720? Can they or traditional IRA’s be reported as life insurance (“S”).
Many, many thanks, Tim
When the distribution is taken! You should only pay taxes on the part of the distribution that corresponds to the growth of your original contributed capital. I agree 100% with you that the calculation is almost impossible since the AEAT would like you to calculate the gains with the FIFO on the years and the correspondent part of the distribution.
Thanks for the help. So, to list a Roth on the Modelo 720, I assume we would list the specific investments held within the Roth (as a Roth is usually made up of some type of fund), just as we would if they were regular investments not held in a Roth? I ask because in one of the answers given by Hacienda (case V1291-22, I believe, as mentioned in an above comment) relates IRA’s to life insurance (though it’s not specifically saying to list them on the 720 as a life insurance).
In Modelo 720 you must report the value of the IRA at December 31st 2024
Thanks so much for this site and for your commentary, Antonio. It’s a breath of fresh air in a field that seems to be full of so much confusion and misinformation. I’m hoping you can help me with a couple issues:
My wife and I are not US-eligible to withdraw Roth IRA earnings because we are only in our early 40’s, but we have money in our Roth IRA accounts. If we move to Spain, but DO NOT withdraw any funds from our Roth IRA’s, will these accounts growth/earnings/dividends be taxed by Spain? If we have to pay tax on Roth IRA growth that we have no access to, this could be a deal breaker for us….
And one more question regarding a rarely used retirement account here in the US. My wife and I were employed by local governments in New York and each have a 457(b) retirement account that we funded while employed by local governments in NY (NYC & Westchester County). This account is only available to government employees, and the main benefit is that withdrawals can be made before the age of 59 1/2 without the penalties that other retirement accounts have. The only requirement is that you are no longer employed by your government. Would this pension receive the same taxation as a US civil pension since it was funded while working for the government and is a fund that is only available to government employees?
Thanks for what you do!
Your situation is quite different to others, tax wise… you only have to pay taxes in Spain when you have distributions of the Roth IRA.
Retirement accounts and pensions received by a public official are exempt from taxes in Spain. So you will ended paying taxes only in the US
Hello Antonio, I have read elsewhere that only traditional IRA’s and Roth IRA’s need to be reported on Modelo 720…and not a 401K? Is this true? I have read all comments above and you mention the 401K also needs to be reported…so now I am very confused. I only have a 401K- I will be eligible to make withdrawals from it from May 2025. I moved to Spain September 2020 and my tax guy told me no need to report it until I start making withdrawals on it- which I plan to in 2025.
There are two different issues here… as far as I understand the 401K must be reported in the Modelo 720, which is an informative report, no taxes involved. In the IRPF (Tax return) you only have to declare the distributions, when you received them, and pay taxes on the distributions as earned income.
Thanks for the article and then the replies Antonio. If I understand correctly, distributions from Roth IRAs will pay tax in Spain as capital gains (ingreso del capital mobiliario) but not on the tax base (contributions). If I contributed 40K to a Roth IRA that now has 100K and I withdraw 5K, since 40% of the value are my contributions, then I would pay tax on only 3K of the 5K but as capital gain, at a lower tax rate than income from work. Right?
I had understood that this treatment was only if the whole of the Roth IRA balance was withdrawn at once (en forma de capital), see V1291-22 page 5, paragraph 5 from the top where it references LIRPF 23.3.a.
In the case of yearly withdrawals (forma de renta), then it would still pay tax as capital gain but in the whole amount including the amount that comes from after tax contributions.
Did I misinterpret either the V1291-22 or LIRPF 23.3.a?
Thanks a lot.
Hola Antonio,
Muchas gracias por tu blog. ¿Tengo que declarar mi 401K en el modelo 720 dentro del apartado “V” (y subapartado 2, como si fueran beneficios de prestar activos propios a terceros) o dentro del apartado “I” (como si fuera una inversión en un fondo de pensiones/de inversión colectivo?
Thanks a lot!
Thanks so much for all the information that is being shared in this blog!
I’m still a little confused about how my IRAs will be treated once I retire here in Spain.
So let say that once I’m eligible to take money out of my SEP/IRA its value will be $1M and that during the previous 30 years I contributed a total of $400K.
Once I start taking out money, lets say $75,000 a year, Hacienda will be taxing me as if I had an income of $75,000 that year (like it would happen in the US) or on top of that I will need to also pay capital gain tax on the $600,000 ? I really hope not because no US person would even consider retiring here….
Also most of my funds are in a SEP/IRA do you know if hacienda treats it differently than a 401k or a Traditional IRA or a Roth IRA?
Last question for the Modelo 720. How do you categorize these IRA accounts under “Clave tipo de bien o derecho”? Because none of the 5 below really describes an IRA….
• “C”: Cuentas abiertas en entidades que se dediquen al tráfico bancario o crediticio y se encuentren situadas en el extranjero.
• “V”: Valores o derechos situados en el extranjero representativos de la participación en cualquier tipo de entidad jurídica, valores situados en el extranjero representativos de la cesión de capitales propios a terceros o aportados para su gestión o administración
a cualquier instrumento jurídico, incluyendo fideicomisos y “trusts” o masas patrimoniales que, no obstante carecer de personalidad jurídica, puedan actuar en el tráfico económico.
“I”: Acciones y participaciones en el capital social o fondo patrimonial de Instituciones de Inversión Colectiva situadas en el extranjero.
• “S”: Seguros de vida o invalidez y rentas temporales o vitalicias, cuyas entidades aseguradoras se encuentren situadas en el extranjero.
• “B”: Titularidad y derechos reales sobre inmuebles ubicados en el extranjero.
Yes, in your example Hacienda will be taxing me as if I had an income of $75,000 that year
SEP/IRA is treated by Hacienda similar to a 401k or a Traditional IRA
Oliver, I apologize if I do not answer your last question about the categories of the 720. It is probably another good article for the blog. Modelo 720 is also very confusing because it is all coded… I would recommend you to call the AEAT only once to ask that question, I am sure that if you call twice you will get two different answers, and of course, do not call them three times…
Thank you for this blog. It has answered MANY of my questions related to Roth and Traditional IRAs. In regards to Modelo 100, how does Spain tax HSAs (Health Savings account)?
Jacki, good question, I was surprised that nobody until now has asked for the treatment of the HSA. It is my understanding that for the Spanish authorities will give them a similar considerations as the IRA… if we follow the logic explained in the “Biding Question”
Hello Antonio,
My husband and I are looking to move to Valencia on a NLV but we are concerned about the Wealth tax.
We intend to live off of our savings for several years and not withdraw from our IRA’s & 401K accounts. Neither are Roth products.
Is the total balance, not distribution, of a regular work 401K (not Roth) taxed under the Wealth tax scheme? Or are the yearly increases/gains, (not distributions) on the account taxed under the Wealth tax laws?
Same question regarding a regular IRA, not Roth. The IRA’s are both rollover accounts from previous employer pension accounts. Are the total balances in the accounts, (not the distributions), considered taxable under the Wealth tax laws?
If the combined total of the 401K & IRA accounts is >3mil euro are we subject to paying Wealth tax on these accounts?
We are aware that distributions are taxed as income. As will we not be taking distributions for our 401k or IRA accounts for while we are looking for clarity specifically on the Wealth Tax.
Thank You
Lisa, you are correct! I assume that you understand that one thing is the income tax return, where you are taxed on your income (in your case distributions that have not already paid taxes) and the Wealth tax which you are taxed on the value of your assets by December 31. This is obviously double taxation in the same country, we all complain about that!.
Hello Antonio,
My husband & I plan to move to Valencia on a NLV. We would live off of our savings for several years before making withdrawals from our IRA’s & 401K accounts. None of our accounts are a Roth product.
Is the total balance, not distribution, of a regular work 401K (not Roth) taxed under the Wealth tax scheme? Or are the yearly increases, (not distributions) on the account taxed under the Wealth tax laws?
Same question regarding a regular IRA, not Roth. Is the balance in the account, not the distributions, considered to tax under the Wealth tax?
We are aware that distributions are taxed as income.
Our concern is the Wealth tax as it may relates to the balances of our traditional IRA’s ( both rollovers from prior employer pensions) and the 401K accounts which total >3 million euro.
Thank You
All IRAs, Roth IRAs, 401K or any other accounts must be included in the Spanish Wealth Tax.
Thank you for this article. My husband and I are planning to move to Spain next year on a retiree Visa. I have a Roth IRA. I understand that I will be taxed on the earnings at the capital gains tax rate but only when I take withdrawals from it. However, since Roth IRA earnings are not taxed at all in the US, would it be a smarter business decision to move all the money from the Roth IRA into different account before becoming tax residents in Spain?
Thank you
It sound as a very smart decition to do so.
Thank you so much for answering so many questions here! I have read through most of what is already here, so I *think* I understand how the taxes would work for my family’s case, but I want to check and make sure I understand correctly, and also ask one more question.
1. For IRA withdrawals (in my case, Traditional IRAs, not Roth), the withdrawals my spouse and I make would be taxed as ordinary income in Spain, correct? Would it make any difference if some of the withdrawals are coming from an Inherited IRA? (I have one IRA that I inherited last year when my aunt passed away, which makes up maybe 20% of what my spouse and I have saved in IRAs at the moment.)
2. I also have what is called a TSP account here. TSP (Thrift Savings Plan) is specifically a retirement savings account for U.S. Government employees only. It’s similar to a 401k, but it’s for federal government workers only. Would withdrawals from my TSP then NOT be taxed in Spain because it’s money derived from my work as a government worker? (That’s good news that I was not aware of if so!)
3. Related– would my government pension then also not be taxed in Spain?
4. Withdrawals from regular, non-retirment savings accounts aren’t taxed in Spain, are they? This is money we’ve already paid taxes on and then put into a regular savings account, so it’s really not income. I understand interest and capital gains are taxed, but the actual savings isn’t, is it? (Apart from the wealth tax, which I’m not worrying about at this time as we may not have enough saved to be subject to that anyway.)
Thank you!
1. Yes, IRA withdrawals would be always taxed as ordinary income in Spain, even the Inherited IRA
2. TSP (Thrift Savings Plan) are pension from federal government and are exempt from taxation in Spain, as long as you are not Spanish citizen.
3. Yes, government pensions are not taxed in Spain
4. Withdrawals from regular, non-retirment savings accounts aren’t taxed in Spain. Interest and capital gains are taxed, but the actual savings isn’t.
It is curious there are many confusing & different understanding and interpretations on (Roth) IRA treatments. As one of the comments above pointed out, it is duly listed and defined in the convention between the US and Spain that Roth/IRA is a pension fund (Technical Explanation of the Protocol signed at Washington on January 14, 2013). It is not just an IRS definition. It is agreed between the two nations and there is plenty clarity as black and white.
If Spain is not treating IRA, Roth or traditional as previously defined & agreed, is it not against the agreement between the two nations?
And if ROTH accounts are treated as brokerage accounts (and taxed as such), Roth accounts are facing double taxation, which is what the convention between the two has tried to avoid in the first place!
By the way, a very nice and informative blog. Thank you!
As far as I undrestand:
“It is not just an IRS definition”: It is a Spanish definition of a pension plan: The Official State Gazette (BOE) which defines what a pension plan is in Spain is found in Royal Legislative Decree 1/2002, of November 29, which approves the consolidated text of the Law on the Regulation of Pension Plans and Funds. https://www.boe.es/eli/es/rdlg/2002/11/29/1/con
“Roth accounts are facing double taxation”. I do not think so, because Rothe IRA is not taxed on any part in the US so it is only taxed in Spain on the Capital Gains from the contributions made.