US 401(k) and IRA rules after moving to Spain

Key rules

• Where you are taxed: Once you are resident in Spain, Spain taxes your US private and workplace pension withdrawals.
• Roth status: Spain does not automatically recognise the US tax-free status of Roth withdrawals, so the growth portion is generally taxed.
• US citizens: US citizens and green-card holders can be taxed by both countries, with foreign tax credits relieving the double tax.
• Rollovers: Only a direct transfer between equivalent schemes, where you never receive the money, is generally treated as not taxable.

The short answer

Once you are resident in Spain, Spain taxes what you take out of your 401(k) and IRA. Under the Spain–US treaty, private and workplace pensions are taxed by the country where you live. You declare withdrawals on your Spanish tax return.

Traditional 401(k) and IRA withdrawals

Spain treats a distribution paid to you as pension income from work. It goes into your general taxable income, taxed at the normal progressive rates. Declare it each year on your Spanish return, in the currency conversion of the day you received it.

Roth accounts: the US exemption does not carry over

In the US, qualified Roth IRA and Roth 401(k) distributions are tax-free. Spain does not recognise that status automatically. The growth portion of a Roth distribution is generally taxed in Spain, as savings income or employment income depending on the type of account. Spanish tax authority rulings have generally not extended the treaty's pension article to Roth accounts held by residents. Your own facts can change the outcome, so get advice on your specific account before you withdraw.

If you are a US citizen or green-card holder

The US can still tax its citizens and green-card holders wherever they live. You may therefore owe tax in both countries on the same withdrawal. Double tax is relieved with foreign tax credits: the tax you pay in one country is credited against the other. Plan the order of filing with a cross-border tax adviser so the credit works.

Rollovers need care

Spain has no specific rule that exempts a 401(k)-to-IRA rollover or an IRA conversion. Spanish tax authorities have generally treated a pure transfer between equivalent schemes as creating no immediate taxable income, but only if the money goes straight from one provider to the other and you never receive it.

Two cases are different:

• A Roth conversion is treated as pension income in your general taxable income.
• Any payment made to you personally, even if you plan to redeposit it, is treated the same way.

Do not move money until you have confirmed the treatment for your case. Individual cases are decided under the treaty and the Spanish tax authority's binding rulings, and you can ask for one. The questions below cover the most common doubts.

Frequently asked questions

Does Spain treat my Roth IRA distributions as tax-free like the US does?

No, Spain generally taxes the growth portion of Roth IRA and Roth 401(k) distributions, even though the US exempts them. Spain does not recognise Roth status automatically, and the tax office has generally not extended the treaty's pension rules to Roth accounts.

Can I be taxed in both Spain and the US on my 401(k) withdrawals?

Yes, if you are a US citizen or green-card holder, both countries can tax your 401(k) withdrawals. The US keeps the right to tax its citizens even when they live in Spain. You then claim a foreign tax credit to relieve the double tax.

Is rolling my 401(k) into an IRA taxable in Spain?

Usually not, if it is a pure transfer between equivalent schemes and the money never reaches you. A Roth conversion, or any payment made to you personally, is treated as work income in the general base. Ask a tax adviser before moving money, because individual cases are decided on their facts.