How Spain Taxes 401(k) and IRA Withdrawals for US Retirees

Plenty of Americans retiring to Mallorca assume their 401(k) or IRA will simply keep working the way it did back home. It does not. Once you become a Spanish tax resident, Spain taxes your worldwide income, and a US retirement account withdrawal is no exception. What changes is not just the tax rate. It is the category your withdrawal falls into, whether a Roth IRA is taxed at all, and what happens if you try to roll a 401(k) into an IRA after the move. This article walks through each of those questions using the current US-Spain tax treaty and a recent ruling from Spain's tax authority.

When your US retirement accounts become taxable in Spain

You become a Spanish tax resident once you spend more than 183 days a year on the island, or once Spain is the centre of your economic and family life, regardless of whether you have registered at the town hall (empadronamiento). From that point on you declare your worldwide income in Spain, including withdrawals from a 401(k), a traditional IRA, a Roth IRA, or a SEP IRA. The exact criteria, including the special regime for new arrivals, are covered in our guide to tax residency and the 183-day rule.

Spain's income tax, the IRPF, splits income into two separate scales: a general scale for employment income, pensions and most retirement account withdrawals, and a lower savings scale for dividends, interest and capital gains. Which scale applies to your withdrawal is a question of how Spain classifies the account, not a question of what the money was called in the US.

Traditional 401(k) and IRA withdrawals: taxed as general income

Spain has no domestic equivalent to a 401(k) or a traditional IRA, so each one has to be mapped onto a Spanish category. In practice, the Spanish tax agency and most advisers treat withdrawals from a traditional 401(k) or IRA as general income, taxed on the same progressive scale as a salary or a pension. For 2025 and 2026 income, that scale runs from roughly 19 percent at the bottom to 47 percent for income above 300,000 EUR, with the exact brackets varying slightly by autonomous community.

This matters because it is meaningfully worse than the separate savings scale, which tops out at 30 percent. A large lump-sum withdrawal in a single tax year can push you well into the higher general-income brackets for that year, on top of any pension or rental income you already declare.

Residents aged 65 to 74 get a higher personal allowance, and those 75 and over get a larger one still, which softens the effective rate somewhat for older retirees. Spreading large withdrawals across several tax years, rather than cashing out a 401(k) in one go, is the main lever most retirees actually have.

Social Security payments: still taxable on both sides

US Social Security payments to a Spanish resident are a separate question from 401(k) and IRA withdrawals, but retirees usually ask about both together. Under the US-Spain tax treaty, the US can continue to tax Social Security benefits paid to a Spanish resident. If the US taxes the benefit for a reason other than your citizenship, Spain credits that US tax against what you owe in Spain. If the US taxes you purely because you are a US citizen, the so-called saving clause, Spain gives no credit for that, and relief then has to come from the US side.

Roth IRA: the uncertain case

A Roth IRA is where things get genuinely unclear, and it is the account type most likely to catch people out. Spain has no concept of a retirement account that is tax-free on withdrawal after being funded with already-taxed contributions, and the US-Spain tax treaty does not create one either. Some advisers argue that Roth contributions, already taxed once in the US, should not be taxed again in Spain, while growth inside the account should be taxed as savings income when withdrawn. Others have reported Spanish tax inspectors treating the full Roth distribution as ordinary general income, with no recognition of the tax-paid contributions at all.

Rolling a 401(k) into an IRA after you move: the 2025 ruling

A common step before or after retirement is rolling a 401(k) into an IRA. Spain's tax authority, the Dirección General de Tributos, addressed exactly this in a 2025 ruling (V0251-25), building on a provision added to the US-Spain tax treaty by its 2013 protocol, which entered into force in November 2019. That provision lets a transfer of economic rights between two qualifying US retirement schemes happen without triggering Spanish tax at the moment of transfer, deferring taxation until you eventually take a distribution.

The condition is strict: the money must never be made available to you personally and must go directly from one qualifying plan to another. If the funds pass through your own account, even briefly, or land in a vehicle that does not qualify as a pension scheme under the treaty, Spain can treat the whole transfer as a taxable distribution in that year, taxed at the general-income rates described above. A rollover from a US plan directly into a Spanish pension product does not qualify for this deferral at all, since that kind of transfer falls outside what the treaty covers.

Reporting the accounts: Modelo 720

Separately from any tax owed on withdrawals, Spanish tax residents must report foreign financial assets, including 401(k) and IRA balances, on Modelo 720 once the combined value of a category of assets passes 50,000 EUR. This is an informative return, not a tax bill, but the deadline is firm: it falls on 31 March each year for assets held the previous 31 December, and missing it can bring penalties even though no additional tax is due on the filing itself.

Frequently asked questions

Is a 401(k) withdrawal taxed differently from an IRA withdrawal in Spain? No. Both are generally treated the same way, as general income on the progressive scale, once you are a Spanish tax resident.

Can I avoid Spanish tax by leaving the money in the US account? No. Spain taxes you on the distribution when you take it, regardless of which country the account sits in, as long as you are a Spanish tax resident at that time. Where the account is held does not change when or whether Spain taxes the withdrawal.

Does the 401(k)-to-IRA rollover rule also work for a Roth IRA? The 2025 ruling addresses transfers between qualifying US retirement schemes generally, but Roth IRAs carry the additional uncertainty described above. Get specific advice for a Roth rollover rather than assuming the same answer applies.

Conclusion

The core surprise for most US retirees is simple: a 401(k) or traditional IRA withdrawal is taxed in Spain as general income, not as the lower-taxed savings income many expect, and a large lump sum can land you in a high bracket for that year. Roth IRAs remain a genuine grey area that deserves professional advice before you move, not after. If you are planning to roll a 401(k) into an IRA, do it as a direct transfer and keep the paperwork, since the 2025 tax ruling only protects transfers that never pass through your own hands. And whatever you decide on withdrawals, remember that the accounts themselves need to be reported on Modelo 720 once they cross the threshold.

This article is general information, not tax advice. Your situation depends on the size and type of your accounts and on how a Spanish tax adviser reads the current rules, so confirm the details with a qualified adviser before you act.

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