# Are 401K withdrawals taxable in Spain



## elamaral

Hi,

I am new to the forum and tried to search for the information but could not find anything relevant. We are US citizens living in the United States (my husband is also a French citizen) and we are planning an early retirement in Spain, Valencia area in a couple of years. Besides pension through an employer, we also have 401K retirement savings plan from which we plan to have withdrawals while living in Spain (we will apply for residency upon arrival). My question is - how 401K disbursements for retirees are treated in Spain from the tax perspective - is is considered taxable income, or savings income, and how is it normally taxed (when you make withdrawals from 401K savings account, it's already taxed in the US - is it also taxed in Spain, or portion of it,or dividends from it)? 

If somebody has a similar situation and could share the experience, we would really appreciate it.


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## Swerve

I would be having a word with someone in Spain that just deals with this sort of matter. 
Google tax on savings in Spain and there are people that can help. A bit money spent May mean a lot of money saved.


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## Swerve

Found this. 

Savings Income- Rendimientos del Capital Mobiliario



Savings income includes interest on savings accounts and dividends received.


Residents

First 6,000 Euros: 20%
6,000 - 50,000 Euros: 22%
24,000 + Euros: 24%

Non-residents

First 6,000 Euros: 19%
6,000 - 50,000 Euros: 21%
24,000 + Euros: 23%


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## skip o

Don't be surprised if you get different answers from different professionals in Spain. I have read everything under the sun about how 401ks are taxed on withdrawals, taxed on the income they might make annually, taxed via the wealth tax.


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## elamaral

Swerve said:


> Found this.
> 
> Savings Income- Rendimientos del Capital Mobiliario
> 
> 
> 
> Savings income includes interest on savings accounts and dividends received.
> 
> 
> Residents
> 
> First 6,000 Euros: 20%
> 6,000 - 50,000 Euros: 22%
> 24,000 + Euros: 24%
> 
> Non-residents
> 
> First 6,000 Euros: 19%
> 6,000 - 50,000 Euros: 21%
> 24,000 + Euros: 23%


Thanks! But our dilemma is if 401K is actually considered "savings income" or is it considered pension income from Spain tax law perspective. Depending, how it's treated, we'll be falling into different tax brackets - 24% in first case or 35% in second case, which will make a big difference.


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## elamaral

So, it's confusing... From the information I could gather, it looks like 401K can be treated as:

pension savings
pension income
wealth
pension insurance
personal savings
life insurance

The question is: which one is actually legal to apply? 
And how it's taxed - on withdrawals only, on withdrawals + gains/dividends, on gains/dividends only?


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## elamaral

skip o said:


> Don't be surprised if you get different answers from different professionals in Spain. I have read everything under the sun about how 401ks are taxed on withdrawals, taxed on the income they might make annually, taxed via the wealth tax.


Yes, it's mind bugging! Looks like it's a shady area - how this particular pension savings plan is treated as far as Spanish tax law. I browsed the web for a week and could not find any concrete answer! Everything is very vague on the subject. I guess, it will be at the discretion of a tax accountant which tax bracket to stick it in... I was hoping that maybe somebody, who is has been living in Spain and already filed taxes, had some information to share on their own experience.


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## alborino

elamaral said:


> I was hoping that maybe somebody, who is has been living in Spain and already filed taxes, had some information to share on their own experience.


Elameral I've noticed before this lack of volunteers offering what actually happens. Be the question related to UK SIPP, ISA, US 401K or operating overseas companies (e.g. as used by contractors). 

There must be members here who have gone through this process. Could it be that no one has any faith that the way it is handled for them is correct? And that in any case there is no point in mentioning it as the rules will change in interpretation tomorrow? And it is not only the members here but Spanish professionals also have no faith in their interpretation of the rules.

The whole situation makes Spain look an absolute joke. Very sad


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## Eugene52

*Eugene52*

Hi to everyone!
Did you, guys, finally went through all these complications with 401K?
I will need to go through it for 2016 taxes and can't find the answer either!
I visited 4 different local offices and they made different conclusions.
It seems like I need to make this decision how to go through it.
If anyone knows exactly what to do, please, let me know. Thank you.


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## HansD

*401K in Spain*

Hi, 
I stumbled across this thread from a few years ago. I just wondered whether you got any more information on this. 
I have a 401K and will probably retire in Spain and have the same questions as you have. 
Mostly i wonder whether the money get double taxed i.e. the 28% in the US and then another time in Spain?
Do you have more information that you can share?

Thanks, 
Hans


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## Elyles

HansD said:


> Hi,
> 
> I stumbled across this thread from a few years ago. I just wondered whether you got any more information on this.
> 
> I have a 401K and will probably retire in Spain and have the same questions as you have.
> 
> Mostly i wonder whether the money get double taxed i.e. the 28% in the US and then another time in Spain?
> 
> Do you have more information that you can share?
> 
> 
> 
> Thanks,
> 
> Hans




Double taxed, no, at least in re to the US Tax Treaty with Spain. If you withdraw 401k contributions and pay taxes on them stateside, you pay no tax on them here


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## Eugene52

Yes, you should pay taxes out of withdrawn 401K in Spain also. At the end of the day taxes you paid in USA will be deducted from Spain tax. Good news is: if you have some 401K funds established up to end of 2006, then, you will pay taxes with out of 40% discounted amount. Whatever after 2006 does not have that advantage. Example: you withdraw 20K. 15k was at the end of 2006. You will pay taxes out of:
20K x 0.6 + 5K = 11K
401K withdrawal considered here in Spain same way as in USA - it is earnings.


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## Eugene52

If you will consider run taxes here in Spain, I can advise you a tax/accounting office here in Valencia, where you can find a very reliable english speaking experts. It is another issue here: very difficult to find a reliable source of info. I went to these people well prepared and knew right then - I will work with them.
They will charge you somewhat 300 euros, or 500 for 2 people, or 2 tax reports.
But, before them, I was "travelling" from one office to another without any success. 
Are you going to report Form 720? It is another obligation you will need to take care of, if you will stay here.


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## lorort

https://www.irs.gov/pub/irs-trty/spain.pdf
If you copy and paste this link it discusses the double taxation treaty between US and Spain. I'm hoping someone here can make sense of it.


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## Elyles

lorort said:


> https://www.irs.gov/pub/irs-trty/spain.pdf
> If you copy and paste this link it discusses the double taxation treaty between US and Spain. I'm hoping someone here can make sense of it.




Bottom line is that you don’t pay taxes on what you do in the US. You also have to file for a form from the IRS yearly to have in case they ask for it. You can order it on line.


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## Elyles

Elyles said:


> Bottom line is that you don’t pay taxes on what you do in the US. You also have to file for a form from the IRS yearly to have in case they ask for it. You can order it on line.
> 
> 
> Sent from my iPad using Tapatalk




Find an Assessor where you live that knows or is willing to research the Treaty. We did at a minimal cost here. It will save you a lot of headaches


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## Eugene52

*Eugene*



Elyles said:


> Bottom line is that you don’t pay taxes on what you do in the US. You also have to file for a form from the IRS yearly to have in case they ask for it. You can order it on line.
> 
> 
> Sent from my iPad using Tapatalk



Don't forget: if you would apply for a retirement visa in Spain, you would then need to apply for Tarjeta de Residencia. Let's say you did it in June. Then, this particular year(more than 183 days) you will be considered by Spain tax authorities as a "resident". Residents are obligated to pay taxes like all Spain citizens do. They pay taxes from all sources in and out of country.
In this case double taxation treaty between USA and Spain gives the only advantage - to deduct you taxes paid in USA(because they are smaller).
You need to keep in mind, that Hacienda(IRS) work very hard to identify those who violated that.
Penalties are huge.
And again: you need to file form 720 before the end of march each year. Failure to report will bring huge penalties either. 
It is not a joke.

Thanks,

Eugene


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## HansD

*401K in Spain*

Thanks all for your replies. This has been extremely helpful.


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## Tortuga Torta

Elyles said:


> Bottom line is that you don’t pay taxes on what you do in the US. You also have to file for a form from the IRS yearly to have in case they ask for it. You can order it on line.
> 
> 
> Sent from my iPad using Tapatalk


Do you happen to know if you withdraw Roth IRA money--which you won't pay U.S. taxes on when it is withdrawn--will you pay taxes on that to Spain? 

Roth money is often money that was taxed when it went into the IRA, but not necessarily: it's possible it was rolled over from a traditional IRA during years in which one's earnings were very low. In that case, it may not have been taxed going in, and will definitely not be taxed going out--in the U.S., at least. What about Spain?


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## Elyles

Tortuga Torta said:


> Do you happen to know if you withdraw Roth IRA money--which you won't pay U.S. taxes on when it is withdrawn--will you pay taxes on that to Spain?
> 
> 
> 
> Roth money is often money that was taxed when it went into the IRA, but not necessarily: it's possible it was rolled over from a traditional IRA during years in which one's earnings were very low. In that case, it may not have been taxed going in, and will definitely not be taxed going out--in the U.S., at least. What about Spain?




Roth is income. You can pay taxes on it in the US in your annual or quarterly statement and avoid paying it here


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## Tortuga Torta

Elyles said:


> Roth is income. You can pay taxes on it in the US in your annual or quarterly statement and avoid paying it here
> Sent from my iPad using Tapatalk


Roth withdrawals (after 59.5 and if in account 5 years) _isn't_ taxable income upon withdrawal in the U.S., right? So, if you take $20k out of your Roth at age 70 (money that has been sitting in there for 10 years, say), you should pay $0 in taxes on it. But my question is: Would Spain tax that $20k?


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## mtantill

Tortuga Torta said:


> Roth withdrawals (after 59.5 and if in account 5 years) _isn't_ taxable income upon withdrawal in the U.S., right? So, if you take $20k out of your Roth at age 70 (money that has been sitting in there for 10 years, say), you should pay $0 in taxes on it. But my question is: Would Spain tax that $20k?


Based on what I have read so far, yes (at 19% up to 50K I believe, although you might get a break for age bracket). I have solicited some advice on this topic at the Valencia site (recommended here in another thread), but have not heard back yet. Sometimes I read the tax is on earnings not principal, other places say tax is all money pulled across as ordinary income, so I am keen to know as well.


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## Tortuga Torta

mtantill said:


> Based on what I have read so far, yes (at 19% up to 50K I believe, although you might get a break for age bracket).


So far, that seems consistent what I've been seeing other than Elyses's comment earlier in this thread, but I have really almost no certainty on this matter one way or the other.



> I have solicited some advice on this topic at the Valencia site (recommended here in another thread), but have not heard back yet. Sometimes I read the tax is on earnings not principal, other places say tax is all money pulled across as ordinary income, so I am keen to know as well.


If the tax is actually on all money (gains + principal), that's not good at all. I've had a couple of people tell me that it is common practice worldwide to not tax principal (aka "basis", as that is just your own money, no different than money sitting in a bank, in some sense), and so in that regard Spain would be expected to not tax the principal. But I don't know the official policy.

I will say this, though: that these basic facts of personal finances are apparently very hard to track down (in that people here seem to all report that if you ask five different accountants, you'll get five different answers) in a modern European country is surprising and very disappointing, and makes living elsewhere seem a wiser choice, at least as regards these types of issues. Perhaps this point has been exaggerated for effect in these anecdotes, so I don't want to be unfair to the country. I'll keep digging.


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## dewayneg

Tortuga Torta said:


> So far, that seems consistent what I've been seeing other than Elyses's comment earlier in this thread, but I have really almost no certainty on this matter one way or the other.
> 
> 
> 
> If the tax is actually on all money (gains + principal), that's not good at all. I've had a couple of people tell me that it is common practice worldwide to not tax principal (aka "basis", as that is just your own money, no different than money sitting in a bank, in some sense), and so in that regard Spain would be expected to not tax the principal. But I don't know the official policy.
> 
> I will say this, though: that these basic facts of personal finances are apparently very hard to track down (in that people here seem to all report that if you ask five different accountants, you'll get five different answers) in a modern European country is surprising and very disappointing, and makes living elsewhere seem a wiser choice, at least as regards these types of issues. Perhaps this point has been exaggerated for effect in these anecdotes, so I don't want to be unfair to the country. I'll keep digging.


Apologies for reviving such an old post.

Did your digging get you any satisfactory answers?


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## Tortuga Torta

dewayneg said:


> Apologies for reviving such an old post.
> 
> Did your digging get you any satisfactory answers?


No, sorry. It is just too tedious to slog through information when much of it can be incorrect. I don't have faith in Spain's ability to clearly indicate their tax laws and so have basically "kicked the can down the road" on the idea of moving there. At least here in the U.S., I can know with certainty what the tax laws are.


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## kck

Another apology for another old-thread revival. As you will see I am a first-time poster. My wife and I, late 50s, have been exploring the retire to Spain thing but have a major concern, relating to wealth tax, the existence of which we were recently alerted to. We have been avid savers for 30+ years and have enough in 401K and other accounts that will expose some money to Spanish Wealth tax unless there is an exemption for, say, 401K balances (which are, unsurprisingly, largely in stocks).

To elamaral and tortuga, did you ever move to Spain? Valencia is our target location also (which has a lower tax exemption, ugh). I saw, tortuga, where you said you'd passed on it but your tags say 'expat in Spain' so am confused. Elamaral, more or less the same question for you...

This has potential to blow up our plans. All along I was saying to _mi esposa _that one should not have a Plan B, which some people believe jeopardizes Plan A. Now we may need to *create* a Plan B. Am planning to retire early 2020 and she not much later than that.

Anyone who can shed light specifically on wealth tax etc, greatly appreciated!


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## skip o

Before we moved I hired a couple of different accountants to calculate my wealth tax even though I didn't need to pay it. Just to see what the actual numbers look like. I would find a few different accountants in the region you want to live and see what they say.


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## Tortuga Torta

kck said:


> Another apology for another old-thread revival. As you will see I am a first-time poster. My wife and I, late 50s, have been exploring the retire to Spain thing but have a major concern, relating to wealth tax, the existence of which we were recently alerted to. We have been avid savers for 30+ years and have enough in 401K and other accounts that will expose some money to Spanish Wealth tax unless there is an exemption for, say, 401K balances (which are, unsurprisingly, largely in stocks).
> 
> To elamaral and tortuga, did you ever move to Spain? Valencia is our target location also (which has a lower tax exemption, ugh). I saw, tortuga, where you said you'd passed on it but your tags say 'expat in Spain' so am confused.


No, I never moved to Spain at all. Have never lived anywhere other than the U.S. The website doesn't allow me to have "from U.S. and expat in U.S.", understandably. I've left it because Spain was a contender for where we might move to (as my wife is from there). 

Are you aware of the exemptions including a primary residence? Outside of Valencia, it seems that can cover 2 million euros. Within Valencia, I don't know, but, what? about 1.5-1.7 million for a couple? That may at least make a dent.

Blevins Franks, a tax consulting company, paints a picture of that if you consult with them about "restructuring your investments", one can go from having to pay $29k in tax to $0. I have no idea if this is right or not, but I have interacted with one of their people briefly and they seemed legitimate. See here, under "a case study":

https://www.blevinsfranks.com/news/articles/spain-wealth-tax-rates-and-allowances


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## 95995

Tortuga Torta said:


> No, I never moved to Spain at all. Have never lived anywhere other than the U.S. The website doesn't allow me to have "from U.S. and expat in U.S.", understandably. I've left it because Spain was a contender for where we might move to (as my wife is from there).
> 
> Are you aware of the exemptions including a primary residence? Outside of Valencia, it seems that can cover 2 million euros. Within Valencia, I don't know, but, what? about 1.5-1.7 million for a couple? That may at least make a dent.
> 
> Blevins Franks, a tax consulting company, paints a picture of that if you consult with them about "restructuring your investments", one can go from having to pay $29k in tax to $0. I have no idea if this is right or not, but I have interacted with one of their people briefly and they seemed legitimate. See here, under "a case study":
> 
> https://www.blevinsfranks.com/news/articles/spain-wealth-tax-rates-and-allowances


Blevins Franks, a major international firm, have a very good reputation - at least if you are willing to pay them for advice on your specific situation.


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## Nomoss

EverHopeful said:


> Blevins Franks, a major international firm, have a very good reputation - at least if you are willing to pay them for advice on your specific situation.


Maybe, but I mostly found their reps more interested in selling a product for which they received a commission.


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## 95995

Nomoss said:


> Maybe, but I mostly found their reps more interested in selling a product for which they received a commission.


IDK, but I know Americans and Australians who have used them, but that was through "reputable" firms partnered with Blevins Franks. Gets back to whether there is such a thing as "reputable" in the financial services industry. What came to light as part of the Royal Commission in Australia would indicate it is extremely unlikely. And the entire financial sector functions primarily to make as much money as possible from clients. 

As I said, if you are prepared to pay for the advice (that being advice).


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## Nomoss

EverHopeful said:


> IDK, but I know Americans and Australians who have used them, but that was through "reputable" firms partnered with Blevins Franks. Gets back to whether there is such a thing as "reputable" in the financial services industry. What came to light as part of the Royal Commission in Australia would indicate it is extremely unlikely. And the entire financial sector functions primarily to make as much money as possible from clients.
> 
> As I said, if you are prepared to pay for the advice (that being advice).


The did/do produce books about living in various countries, which were reasonably priced and very useful.


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## testcase4321

Wow, this post series started 5 years ago and still no answer? How is that possible??? Does anyone on the expat forum retire to Spain from the US? Or do none of these retirees possess 401K accounts?

The basic question was whether 401K withdrawals are taxable. The answer is yes, just like in the United States the 401K distributions are taxable. The next question is what are these distributions considered to be? Are these distributions income (and therefore the taxes are paid as income tax) or are these distributions investments, at which point they are taxed at a lower rate? Any answer on this question would be very helpful for potential retirees moving to Spain. 

The second question someone asked earlier on was whether 401K balances are considered 'wealth' and therefore, if the balance is large enough, are 401K balances taxable under the Spanish wealth tax. Again, any answer to this question would also be helpful to potential retirees moving to Spain.


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## Vajt

Like many of you I'm also thinking of retiring in Spain, Málaga, in a few years so have also been interested in this topic as my wife and I are both US citizens and will apply for the non-lucrative "retirement" visa and hopefully later on apply for full Spanish residency.

It is also a challenge getting a clear answer and are still determining what is the requirement as we'll be in the same scenario as many of you where we will initially live off savings, no tax complications there, but once we turn 59.5 we'll start taking the suggested 3-4% from the 401K and once we turn 62, the Social Security payments.

I am calculating the potential worst case scenario for now, which is that we would get credit by Spain for any taxes in the 401K or SS taxes we paid to the US but Spain would consider both income and would need to still owe Spain money. Not quite double taxation since we would get credit for what we pay to the US but very unfair as we would be in a higher tax bracket if Spain considers it full income. The numbers can become even scarier if one takes into account the Required Minimum Distribution (RMD)!

I'm hoping someone who is already retired in Spain and in a similar situation can clarify what they file or at least provide a good, knowledgeable and reliable accountant. In the meantime, I'll keep doing research and hope to come up with a more definitive answer.


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## Eugene52

I live in Spain for 5 years now. Filed Renta 2016-2019. Everything included SS and 401K as income. I had an investigation in 2020 running by Agencia Triburaria on my taxes Renta 2016. They concluded that I did everything correctly.
Read my comments earlier about 401K before 2006. It has some advantages.


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## Eugene52

Be very careful if you will sell your house before moving to Spain. It is a special and very complicated topic. Let me know


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