401(k), IRA and Roth IRA for a resident in Spain

If you are a tax resident in Spain, you are taxed here on your worldwide income, regardless of where the money is and who pays it to you. You are considered a resident if you spend more than 183 days of the calendar year in Spanish territory, if the main centre of your economic interests is located in Spain, or if your legally non-separated spouse and minor children habitually reside here. Sporadic absences count as days of stay unless you prove your tax residence in another country with an official certificate.

Having the plan is not, in itself, a taxable event. As long as you do not withdraw money, there is no income to declare in your income tax return. What may exist from the first year of residence are reporting and wealth tax obligations, which are explained below, and that is the order in which problems usually arrive: first a reporting obligation that nobody filed, then the income tax.

If the United States also considers you a resident in the same year, a common situation for US citizens and green card holders, there is a residence conflict that is resolved with the tie-breaker rules of the treaty: permanent home available to you, centre of vital interests, habitual abode and, ultimately, nationality. It is not a matter to be resolved from memory or by counting days on a napkin. Before an administration, residence is only proven with the tax residence certificate issued by the competent authority, the AEAT (the Spanish tax agency) in Spain and the IRS in the United States: no private report replaces it. Managora analyses your situation, tells you which tie-breaker rule works in your favour, gathers the evidence and requests the tax residence certificate mentioning the treaty from the AEAT.

The annual revaluation of the fund is not taxed in Spain as long as you do not receive anything. The criterion of the Directorate-General for Taxes places the income at the time of collection, whether it is a single withdrawal or periodic payments. The fact that your management company sends you a statement with unrealised capital gains does not mean that anything has to be included in that year's income tax return.

The direct transfer from one US plan to another, for example from a 401(k) to an IRA, without you receiving any amount, is not taxed in Spain. The treaty, following the 2013 protocol, defers taxation until the money actually reaches the participant or the beneficiary. The condition is twofold: both must be pension funds for the purposes of the treaty and the transfer must be direct between entities. If the money passes through your current account, or if you move it to a Spanish pension plan, the administrative criterion is that income already exists there.

The contributions you continue to make from Spain do not reduce your taxable base. The Ley del IRPF (Personal Income Tax Law) reserves this reduction for plans regulated in Spain and European occupational pension funds, and a US plan falls outside both categories. In other words: you contribute with money already taxed in Spain and then you are taxed again upon withdrawal, except for the part that the law recognises as a non-taxable contribution.

It depends on whether the plan is linked to employment. If it is, as in the case of an employer's 401(k), a 403(b) or an IRA funded from previous employment, the amount collected is employment income: it enters the general base in full and is taxed at your progressive scale, which adds the state part and that of your autonomous region.

If it is not linked to employment, as is the case with a Roth IRA funded by personal savings, the Administration equates it to a life insurance policy. Then it is investment income, it goes to the savings base and only the difference between what is received and the contributions you made is taxed. The difference between one classification and another can be worth several thousand euros in the same operation.

The 40% reduction that capital withdrawals from Spanish pension plans have does not apply: it is a regime designed for plans regulated here, and yours is not. And the classification is decided on the specific contract, not on the commercial name of the product, so it is advisable to have the plan document at hand and not just the statement. Managora reviews it before classifying the income.

Because Spain does not import the US exemption. There is no equivalent exempt figure in the Spanish income tax, and the treaty does not protect it either: as it does not derive from employment, the withdrawal falls under the other income article, which attributes taxation exclusively to the State where the recipient resides. If that State is Spain, you pay in Spain.

The good part is in the calculation base. As it is treated the same as a life insurance policy, the gain is taxed and not the capital: if you withdraw €30,000 from a Roth IRA to which you contributed €20,000, the income to declare is €10,000, not €30,000.

That is why the contribution history is the most valuable document in the folder. It is the proof of what is not taxed, and US management companies do not always issue it with the detail that the Spanish Administration requests. Request it before giving the withdrawal order, not afterwards.

Yes. The treaty includes a nationality clause, the saving clause, by which each State can tax its residents and, by reason of citizenship, its citizens, as if the treaty had not entered into force. A US citizen resident in Spain continues to file their return with the IRS for that withdrawal.

The practical effect surprises almost everyone: when the United States taxes based on that clause, Spain does not apply the international double taxation deduction in the income tax return. It is the United States that has to eliminate the double taxation, with the foreign tax credit on your American return. Whoever does it the other way around, subtracting in Spain what was paid there, exposes themselves to a tax assessment.

There are two nuances that change the result. The first: pensions paid for services rendered to the US State, the case of the federal civil servant, can only be subject to taxation in the United States, unless the person receiving them resides in Spain and also has Spanish nationality, because then the treaty attributes taxation exclusively to Spain. This is exactly the case of the Spaniard who worked for the US Administration and has returned. The second: if you are neither a US citizen nor a US resident, for example a returning Spaniard, the nationality clause does not affect you, your withdrawal is taxed only in Spain and you must submit form W-8BEN to the plan's management company so that they do not apply the 30% withholding tax at source.

The starting rule of the AEAT is that the consolidated rights of a foreign pension plan are not reported as long as the contingency that gives the right to collect does not occur, that is, retirement, disability or death. Once the contingency has occurred, it is reported, for the withdrawal value or as an income established in your favour.

The exception eats up a good part of the rule: if the contract conditions allow withdrawal in terms similar to those of a life insurance policy, there is an obligation to report from the moment that right of withdrawal exists, without waiting to retire. The Directorate-General for Taxes applied this criterion to an IRA and a Roth IRA of a resident in Spain and concluded that both must be declared. It makes sense: an IRA and a Roth IRA usually allow you to withdraw the money at any time, even if the United States penalises withdrawal before the age of 59 and a half. A 401(k) opened with an active employer, on the other hand, normally does not allow it.

The threshold is €50,000 per block, and this fits into the block of securities, rights, insurance and income. Once filed one year, it is only filed again if that block increases by more than €20,000 compared to the last declaration or if you cease to be the owner of something that was included. The deadline runs from 1 January to 31 March of the following year and does not allow for extensions. Managora checks if you are obliged with your actual balances and files form 720 for you.

The balance of a 401(k), an IRA or a Roth IRA does not enjoy the exemption that the Ley del Impuesto sobre el Patrimonio (Wealth Tax Law) recognises for the consolidated rights of Spanish pension plans. The Directorate-General for Taxes has expressly stated this: they enter your wealth and are calculated by their withdrawal value as of 31 December.

Whether or not this translates into a tax quota depends on the exempt minimum and the allowances of your autonomous region, which are not the same throughout Spain, and on the specific regulations of the Basque Country and Navarre, which have their own tax and not a subsidised version of the state one. Above 3 million euros of net wealth, the temporary solidarity tax on large fortunes also applies, which is state-wide and is filed in July.

This is the point that generates the most unexpected bills for the American who settles in Spain with a large retirement plan: a balance that in their country does not appear in any wealth tax does count here. It is advisable to calculate it before moving your residence, not during the first income tax campaign. Managora reviews your complete case, classifies each product, calculates the income tax and files the corresponding forms. You can see the updated amount of each service on its file.