# Spanish taxation of IRA withdrawals



## icaru

We are US citizens considering applying for Spanish residency. Before we do we are trying to evaluate the tax consequences but cannot find a conclusive answer to how IRA withdrawals would be taxed. One accountant said as pension income, a second said as deferred income (not taxable in Spain because earned in Spain before becoming a resident) a 3rd person said, 'taxable as ordinary savings' and yet another person said 'annuity income'.

These different categories have different tax treatments in Spain with pension and annuity withdrawals being the highest.

Has any US citizen / Spanish resident here ever declared an IRA withdrawal on his/her Spanish tax form ? If so, how was it taxed? What category did it fall into?

I have contacted several tax accountants, both US and Spanish. No one seems able to give a definitive answer. Which leads me to think that we could declare the income as we wish, i.e., savings income.

Please enlighten me if you can!


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## dancebert

I feel your pain, having spent too many hours trying to find an answer. I think I found one. It's a document from the US Dept of Treasury about the Jan. 2013 update of the double taxation treaty (AKA the 'protocol') between Spain and the US. My take on the following paragraph is the Treasury Dept document explains what Spain and the US agreed on how to interpret the Protocol:

_This Technical Explanation is an official guide to the Protocol, Memorandum of Understanding and Exchange of Notes. It explains policies behind particular provisions, as well as understandings reached during the negotiations with respect to the interpretation and application of the Protocol, Memorandum of Understanding and the Exchange of Notes._ See page 1, paragraph 3.

The relevant IRA/401k part is on page 5, in the paragraph that begins with _"Subparagraph 3(a) of the Memorandum of Understanding as corrected by the Exchange of Notes sets forth a non-exhaustive descriptive list of those U.S. entities that will be regarded as pension funds for purposes of the Convention."_

Bottom line is IRAs and 401ks, both traditional and Roth, are taxed as pension funds, IMHO. 

Dept of Treasury Technical Explanation document

Also found this blogger who seems to have a damn good understanding of tax issues for Americans living in Spain:
IRA/401k and the Modelo 720
No Spanish taxes on IRA/401k until withdrawals begin.
Declare your IRA/401k income as foreign income, then apply foreign tax credit to your US tax!
More detailed explanation of the above.


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## icaru

Thanks mucho! My interpretation of IRA income was also that it should fall into pension income. However, none of Sant Cugat's post mention what happens to IRA income when taxed on withdrawal. How Spanish consider it since some tax is already paid when it is taken out.


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## dancebert

icaru said:


> Thanks mucho! My interpretation of IRA income was also that it should fall into pension income. However, none of Sant Cugat's post mention what happens to IRA income when taxed on withdrawal. How Spanish consider it since some tax is already paid when it is taken out.


Funny you should mention that. I think I had the answer:
http://www.expatforum.com/expats/sp...-united-states-retirement-6.html#post11508874


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