# IRA withdrawals + Spanish taxation



## icaru (Dec 12, 2012)

We are considering taking residency in Spain 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 not earned in Spain when a resident) and the 3rd person said, 'taxable as ordinary savings'.

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

Does any US citizen here have the actual experience of being a Spanish resident and having declared an IRA withdrawal? If so, how was it taxed?

I have contacted several tax accountants, US, Spanish and British and no one seems able to give a definitive answer. Which leads me to think that we could choose what we wish, i.e., savings income.

Please enlighten me if you can!


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## Bevdeforges (Nov 16, 2007)

Take a look at the US-Spain tax treaty: https://www.irs.gov/pub/irs-trty/spain.pdf

Article 20 deals with pensions, though I admit what I see there is pretty vague. In some country treaties, IRAs and 401Ks have been specifically mentioned as "equivalent to" US social security payments. But first I'd check out what is the Spanish method of eliminating double taxation - technically speaking, both US social security payments and IRA withdrawals are already subject to US taxation no matter where you live. If you must report all worldwide income, I'd look to whatever method the Spanish use to eliminate the potential for double taxation. (May be further on in the treaty - I only skimmed to find the pension article.)
Cheers,
Bev


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## icaru (Dec 12, 2012)

Thank you for the link, I read this, also read the agreement in Spanish. As you say, both are vague. The question is: Is IRA considered a pension income, an annuity income or a withdrawal of savings? 

I think it would not be considered pension income but would like to hear from a US citizen who actually was taxed on IRA withdrawals in Spain to know how it was treated. Otherwise, it seems open to interpretation.


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## skip o (Aug 1, 2011)

"I have contacted several tax accountants, US, Spanish and British and no one seems able to give a definitive answer. "

Yup. I have talked to dozens of accountants in Spain and they agree on very little.

Last I read, there is a tax treaty in the works between the US and Spain that will address 401ks and IRAs. I think the last treaty was made before some of these retirement vehicles existed.


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## dancebert (Jun 4, 2015)

icaru said:


> Does any US citizen here have the actual experience of being a Spanish resident and having declared an IRA withdrawal? If so, how was it taxed?


I've the same problem. Can't find any answers from US citizens on Spanish income taxes. Did find a US Treasury Dept document that explains what Spain and the US agreed on how to interpret the 2009 version of the Spain-US double taxation treaty. IRAs and 401ks, both Roth and Traditional, are taxed in Spain as pensions.
Wrote about it on this site. 

About that last link in my post. It explains how one can claim a credit on their US taxes for the Spanish taxes on pensions. When I first read it, the method sounded far fetched. Then I googled the IRS forms mentioned in the text and comments. Those forms exist and are intended to be used as the blogger described. Foreign pensions being highly taxed in Spain aren't as bad as it seems - and one can get advice on it from a US tax specialist. Now if I could just find a US citizen with actual experience doing it...


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## roywood (Nov 1, 2016)

dancebert said:


> I've the same problem. Can't find any answers from US citizens on Spanish income taxes. Did find a US Treasury Dept document that explains what Spain and the US agreed on how to interpret the 2009 version of the Spain-US double taxation treaty. IRAs and 401ks, both Roth and Traditional, are taxed in Spain as pensions.
> Wrote about it on this site.
> 
> About that last link in my post. It explains how one can claim a credit on their US taxes for the Spanish taxes on pensions. When I first read it, the method sounded far fetched. Then I googled the IRS forms mentioned in the text and comments. Those forms exist and are intended to be used as the blogger described. Foreign pensions being highly taxed in Spain aren't as bad as it seems - and one can get advice on it from a US tax specialist. Now if I could just find a US citizen with actual experience doing it...


Thanks for identifying your previous post on the subject. Helpful links therein.

Leaves me a bit perplexed to think that Roth accounts might be treated as traditional pensions, since the contributions that one makes to such accounts have already been taxed in the U.S., unlike the contributions to a traditional IRA. It is an issue I won't have to deal with until I take up tax residency, but it does cause one to wonder ... would it be beneficial to withdraw the entire amount in a Roth, and forgo any future tax-free (in the US) earnings, in exchange for not having to pay Spanish taxes on the principal as it is withdrawn?

I shall stay tuned.


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## dancebert (Jun 4, 2015)

You're welcome.

Some countries don't tax US pensions or IRAs, others do. Some ignore Senator Roth's intentions. So it goes.

As I understand it (to be confirmed with a US tax advisor and I suggest you do the same) you don't need to withdraw your entire Roth IRA to prevent Spain from taxing it unless all or most of your income is from the Roth IRA. It's easier to explain with simple dollar based examples. For both examples, assume US taxes are filed with IRS form 1116. 

1. Assume all income is from a Roth. US taxes are $0. Spanish taxes are $5,000. Spain-US tax treaty says pay the difference, so 5,000 - 0 = 5,000 paid to Spain. Claim the $5,000 as a foreign tax credit on your US tax return. That credit can be applied to last years taxes or any of the next 10 years taxes. If you don't have any non Roth IRA income in those years, that credit is worthless to you. Your total paid taxes are $5,000.

2. Assume some income is from a Roth. US taxes are $3,000. Spanish taxes are $5,000 (half of the Spanish taxes are on your Roth). Pay the difference, so 5,000 - 3,000 = 2,000 paid to Spain. Claim $1,000* as a foreign tax credit. US taxes are now 3,000 - 1,000 = 2,000 paid to the US. Your total paid taxes are $4,000. 

*1,000 because unless your other income was a pension you can't claim foreign tax credit for the Spanish taxes on your other income. Your Roth wasn't taxed in either country.

Be aware some states don't allow foreign tax credits based on US tax treaties.


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## GrownupMomo (Nov 28, 2016)

it says you worked in the usa and made money there and have a retirement payment you have to pay usa taxes, no matter where you life but if you are living in another country and benefiting from public services you´ll have to pay taxes in that country over your incomes, to avoid paying taxes twice over the same money spanish goverment discounts the taxes paid to the usa from the amount the resident should paid to spain and charge that different to the resident


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