# taxes on retirement accounts and US ss



## boomerexpat

From what I understand reading the various tax info on Italy, US citizens are liable for paying taxes in Italy on their US social security and retirement accounts such as IRAs because Italy taxes worldwide income. Is that correct?

In the US we don't have to pay on ss unless your income is above a certain amount.


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## BBCWatcher

Short answer, no. The U.S.-Italy tax and Social Security treaties tend to match pension/retirement income source with taxation. There are a couple exceptions to that generalization. Check the treaties.


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## boomerexpat

BBCWatcher said:


> Short answer, no. The U.S.-Italy tax and Social Security treaties tend to match pension/retirement income source with taxation.


I find tax treaties rather convoluted and there are legal verbiage in them that I often don't know the full implication of but you right. need to read the treaty. Just hoping for a shortcut.


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## Bevdeforges

For a US citizen living in Italy, your US social security will be taxable by the US. The big exception to this is for an Italian citizen (can be a dual US-Italian citizen) resident in Italy. They pay income tax on their US Social Security to the Italian government and do NOT pay to the US on this income. (They still have to file US taxes if their worldwide income is above the threshold amount for their filing category.)

The IRS publication on Social Security explains some of the treaty exceptions for those living overseas - Publication 915 Publication 915, Social Security and Equivalent Railroad Retirement Benefits

Isn't tax law fun??? :fish:
Cheers,
Bev


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## NickZ

Social Security Agreement | United States Diplomatic Mission to Italy

Here.

You report and pay in Italy everything but civil service/military pensions. I guess railroad.

You still need to exceed the basic exemption to actually pay taxes. The exemption varies with age.


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## accbgb

I recall reading on another board some time ago that Italy treated 401k/IRA type funds as personal savings and thus distributions from same were not considered taxable income.

Can anyone confirm?


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## Bevdeforges

accbgb said:


> I recall reading on another board some time ago that Italy treated 401k/IRA type funds as personal savings and thus distributions from same were not considered taxable income.
> 
> Can anyone confirm?


I have seen a couple of places (not just for Italy) that 401K/IRA withdrawals are very often considered transfers of capital rather than income. The idea is that you put in all your contributions when you were NOT a resident and not subject to Italian (or whatever other country) tax law. Therefore, you are simply transferring your savings balances.

You do have to pay income taxes on your withdrawals to the US IRS - but basically this approach makes sense to me. 
Cheers,
Bev


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## BelloBello

*SS and IRA's*

Thanks everyone for the info.
I have social security, and also withdraw enough from my retirement accounts, in which I pay no additional taxes to the IRS and state.
Do I understand correctly, I won't be required to pay any additional amount to Italy?
Will I need to file with Italy?
Thanks everyone.


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## Bevdeforges

If you have Italian citizenship and are resident in Italy, you are supposed to pay taxes on your US Social Security only to Italy - not to the US. Practically speaking, I'm not sure how that works. (I help and Italian friend with her US taxes, and apparently most taxes are taken care of by the banks - at least in her case.)
Cheers,
Bev


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## BBCWatcher

You definitely have to file as a tax resident of Italy if only because Italy has its Form RW. Form RW is analogous to IRS Form 8938 (FATCA), although the last time I checked there's no minimum threshold. That is, if you have any non-Italian accounts or assets -- a U.S. IRA surely qualifies, whether treaty-protected or not -- Form RW must be filed. Penalties are very harsh if you don't.

Please note that "tax resident of Italy" isn't quite the same as "resident of Italy." The former is a bit broader.


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## BelloBello

BBCWatcher said:


> You definitely have to file as a tax resident of Italy if only because Italy has its Form RW. Form RW is analogous to IRS Form 8938 (FATCA), although the last time I checked there's no minimum threshold. That is, if you have any non-Italian accounts or assets -- a U.S. IRA surely qualifies, whether treaty-protected or not -- Form RW must be filed. Penalties are very harsh if you don't.
> 
> Please note that "tax resident of Italy" isn't quite the same as "resident of Italy." The former is a bit broader.


Is tax resident, staying in Italy 183 days?

Resident of Italy, actually having a resident permit and living in Italy, which would also make one a tax resident?


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## BelloBello

Bevdeforges said:


> For a US citizen living in Italy, your US social security will be taxable by the US. The big exception to this is for an Italian citizen (can be a dual US-Italian citizen) resident in Italy. They pay income tax on their US Social Security to the Italian government and do NOT pay to the US on this income. (They still have to file US taxes if their worldwide income is above the threshold amount for their filing category.)
> 
> The IRS publication on Social Security explains some of the treaty exceptions for those living overseas - Publication 915 Publication 915, Social Security and Equivalent Railroad Retirement Benefits
> 
> Isn't tax law fun??? :fish:
> Cheers,
> Bev


No.;(
I've planned the best I can, doing my best to keep tax to zero, which is easy to do in the US.
However, in Italy I realize I'll need more for living....currency exchange, etc.
You're always so very helpful. and I appreciate all who help on these forums.


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## Bevdeforges

BelloBello said:


> Is tax resident, staying in Italy 183 days?
> 
> Resident of Italy, actually having a resident permit and living in Italy, which would also make one a tax resident?


That "183 day rule" isn't actually much more than a rule of thumb most places. Normally the actual criteria used for determining your tax residence is something like "where you have your primary centers of interest" - which includes all sorts of things like where you live, where you keep your main possessions, where your family lives, etc. etc. But a residence permit generally means you can claim "bona fide residence" under the IRS rules. (Not always, but sometimes you take what you can get.)
Cheers,
Bev


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## BelloBello

Bevdeforges said:


> That "183 day rule" isn't actually much more than a rule of thumb most places. Normally the actual criteria used for determining your tax residence is something like "where you have your primary centers of interest" - which includes all sorts of things like where you live, where you keep your main possessions, where your family lives, etc. etc. But a residence permit generally means you can claim "bona fide residence" under the IRS rules. (Not always, but sometimes you take what you can get.)
> Cheers,
> Bev


I think I understand it. 
It's not so difficult, once one reads the 'rules', printed or not.
When I first began reading the forums and threads, it was confusing as chicken feathers. But, the longer I read the ones that had more truth, and tossed out ....it does get easier to understand.
Still, one must always remember tax laws aren't made to be easy for us regular folk. That's why God made people such as Bev.


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## boomerexpat

Bevdeforges that would be great if you don't have to pay on the 401K. 

Has anyone found how paying taxes on the social security (which you don't have to do in the US unless you are over a certain combined amount with other funds) nets out with what you save in Italy on medical? 

In my case for example, I have glaucoma and have to spend even in Mexico at least 150 USD on prescriptions a month plus quarterly doctor visits and tests. Is all of that free if you are a permanent resident of Italy? If so, that might help offset most of the social security taxes in my case.


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## Bevdeforges

boomerexpat said:


> Bevdeforges that would be great if you don't have to pay on the 401K.
> 
> Has anyone found how paying taxes on the social security (which you don't have to do in the US unless you are over a certain combined amount with other funds) nets out with what you save in Italy on medical?
> 
> In my case for example, I have glaucoma and have to spend even in Mexico at least 150 USD on prescriptions a month plus quarterly doctor visits and tests. Is all of that free if you are a permanent resident of Italy? If so, that might help offset most of the social security taxes in my case.


Be careful - it's not that you don't have to pay taxes on the 401K, but rather that you pay your taxes on it to the US when you take your money out. I don't believe Italy has a claim on that money - either as the funds are earning interest or on withdrawal. In most countries, that is considered to be your capital (like a savings account). But check the Italian tax law to be sure.

Normally, from overseas, you pay any US income taxes on your social security benefits according to the same rules they use in the US. However, Italian citizens resident in Italy pay no US income taxes on their benefits - they only pay Italian taxes. The one "trick" to remember is that if you are a US citizen married to a NRA and filing as married, filing separately, then your US social security is subject to US taxation (or 85% of it is) whether or not you have any other income.

I don't know how the Italian health care system works for retired foreigners, but I'm sure someone here on the forum will explain.
Cheers,
Bev


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## BBCWatcher

I'm pretty sure U.S. IRAs -- including U.S. Roth IRAs -- are respected in Italy by the tax treaty. So if they're taxed in the U.S. -- Traditional IRAs and Traditional 401(k)s -- then they're taxed only in the U.S. If they're not taxed in the U.S. -- Roth IRAs and Roth 401(k)s -- then they're not taxed in Italy either. And, again due to the tax treaty, while those U.S. retirement accounts are Form RW reportable they're not wealth taxable. (Italy has a small overseas wealth tax.) But please check me on all that.

Boomerexpat, are you an Italian citizen, married to one (and living together in Italy), or would you be living in Italy after acquiring an Elective Residence visa? Or would you have a different status in Italy? The healthcare answer depends in part on how you become a resident of Italy.


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## boomerexpat

BBCWatcher said:


> But please check me on all that.
> 
> Boomerexpat, are you an Italian citizen, married to one (and living together in Italy), or would you be living in Italy after acquiring an Elective Residence visa? Or would you have a different status in Italy? The healthcare answer depends in part on how you become a resident of Italy.


Hi BBC Watcher, thank you for the detailed response. 

I'm looking into the residence visa with the idea of getting an permanent one. Idea is if I can work through all the tax and healthcare issues successfully to retire there.

What is the best way to check you on all that. I like what you wrote but tried to read the tax treaty and not sure what it means. How best to try and sort through all of that?


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## Shaka

Bevdeforges said:


> For a US citizen living in Italy, your US social security will be taxable by the US. The big exception to this is for an Italian citizen (can be a dual US-Italian citizen) resident in Italy. They pay income tax on their US Social Security to the Italian government and do NOT pay to the US on this income. (They still have to file US taxes if their worldwide income is above the threshold amount for their filing category.)
> 
> The IRS publication on Social Security explains some of the treaty exceptions for those living overseas - Publication 915 Publication 915, Social Security and Equivalent Railroad Retirement Benefits
> 
> Isn't tax law fun??? :fish:
> Cheers,
> Bev


I find you a wealth of knowledge where tax questions are concerned. Does the above scenario with a dual US-Italian citizen apply to a dual EU(from Ireland originally) also a US citizen. What is the worldwide income threshold for filing? If you don't mind I would value your thoughts on the best way to file as we are retiring to Italy soon.


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## Bevdeforges

Shaka said:


> I find you a wealth of knowledge where tax questions are concerned. Does the above scenario with a dual US-Italian citizen apply to a dual EU(from Ireland originally) also a US citizen. What is the worldwide income threshold for filing? If you don't mind I would value your thoughts on the best way to file as we are retiring to Italy soon.


Shaka, there are various tax and social security treaties between the European countries and the US. The Italian treaty is a bit unique in several respects, and in those respects, tends to favor Italians residents who have Italian nationality.

The income thresholds for filings are here: Publication 554 (2013), Tax Guide for Seniors

(Don't mind that the publication is for "seniors" - the thresholds apply for everyone subject to US taxation.)
Cheers,
Bev


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## BBCWatcher

I wouldn't necessarily say that interesting Italian provision is a _favor_. It depends on how much U.S. Social Security benefit is involved and also how much other income is coming in. Running some back of the envelope numbers, it can go either way.


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## hookedonFrance

From my reading of the US-Italy 1999 tax treaty (and its explanations), there is good and bad news on retirement income. For a US citizen that never worked in Italy but retires there will pay taxes on Social Security benefits (one of the few instances where US has given up this right in a treaty). However, other retirement income from IRAs, Roth IRAs, 401ks, pensions, etc will be taxed by US and not Italy (based on US interpretation of "severance" payments in Article 18 paragraph 3 to include not just lump sum but also periodic payments). Of course this is all subject to other EU and court decisions that may have come into play after original treaty went into effect.


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