Traditional IRA in Spain: How Distributions, RMDs and Rollovers Are Taxed for US Expats
How Spain taxes a Traditional IRA once you become a Spanish resident: distributions taxed as employment income at progressive rates, required minimum distributions from age 73, 401(k) rollovers, Roth conversions, the US–Spain treaty, Modelo 720 reporting and the Beckham regime, with worked examples and planning tips.
By Jacob Salama, international tax lawyer (Bar no. 11.294, Málaga)
9/10/202610 min read
If you spent your career in the United States and are now living in Spain, your Traditional IRA is probably one of your largest assets — and one of the least understood from a Spanish tax point of view. Americans arrive expecting the account to behave the way it did back home: money grows tax-deferred, and you only settle up with the IRS when you withdraw. Spain accepts the first half of that idea but rewrites the second half entirely. Once you are a Spanish tax resident, Spain claims the right to tax your IRA distributions under its own rules, using its own characterisation of the income, and at its own rates — which are frequently higher than what you would have paid in the US alone.
This guide explains, as of 2026, how Spain taxes a Traditional IRA: how distributions are classified, what happens with required minimum distributions (RMDs), how rollovers and Roth conversions are treated, how the 1990 Spain-US tax treaty and the foreign tax credit fit together, and where the most expensive mistakes are made. It is general information, not advice for your specific case.
Traditional IRA, Roth IRA or 401(k) — what is the difference, and why does it matter in Spain?
All three are US retirement vehicles, but they are funded differently, and that difference drives everything on the Spanish side.
Traditional IRA — funded with pre-tax dollars (contributions were generally deducted from US taxable income). The money grew tax-deferred, and no US income tax was ever paid on the contributions or the growth. Tax is due on the way out.
Roth IRA — funded with after-tax dollars. You already paid US tax on the contributions, and qualified distributions are entirely tax-free under US law. Spain, however, does not recognise that tax-free status.
401(k) — an employer-sponsored plan, usually pre-tax like a Traditional IRA (a Roth 401(k) variant exists). It is very often rolled into a Traditional IRA at retirement or when changing jobs. You can read our dedicated analysis of how the 401(k) is taxed in Spain under the tax agreement with the USA.
The reason the funding history matters is that Spain looks through the account and asks what the underlying payment really is. For a Traditional IRA, none of the money has ever been taxed, so Spain treats the full distribution as income. For a Roth, part of the distribution is a return of capital you already owned. Getting this wrong at the classification stage is where most of the damage happens.
How does Spain tax a Traditional IRA distribution?
Here is the point that surprises most Americans. Spain does not tax a Traditional IRA distribution at the gentle savings-income rates that apply to dividends and capital gains (roughly 19% to 30% in 2026). Instead, the established position of the Dirección General de Tributos (DGT), Spain's tax authority, is that distributions from a US pre-tax retirement account are rendimientos del trabajo — employment income — under Article 17 of the Spanish Personal Income Tax Act (LIRPF).
The logic is that the money represents deferred remuneration from your past employment in the United States. Because it is deferred pay, it goes into the general tax base (base imponible general), which is taxed on a progressive scale that in 2026 reaches roughly 45% to 54% at the top, depending on your autonomous community (Madrid is at the lower end; Cataluña and Valencia at the higher end). Compare that with the savings rates and you can see why the classification is not an academic point.
Two features soften this. First, tax is triggered on distribution, not on accrual: Spain does not tax the growth inside your IRA year by year, only what you actually take out. If you hold the account and take nothing, you owe no Spanish income tax on it (you still have a reporting obligation — more on that below). Second, a lump-sum withdrawal built up over more than two years may qualify for the 30% reduction for irregular income under Article 18.2 LIRPF, though this reduction is capped (a maximum of €300,000 of income) and can generally only be used once in a five-year window. Regular periodic withdrawals do not qualify.
What does the 1990 Spain-US tax treaty say about IRA income?
The 1990 Convention between Spain and the United States allocates taxing rights on pensions and annuities in its pensions article (Article 20 of the Convention). In broad terms, pensions and similar remuneration paid in consideration of past employment, and annuities, are taxable in the state of residence — here, Spain. So the treaty supports Spain's claim to tax your IRA distribution, and it also means the US should not, in principle, withhold on distributions paid to a treaty resident of Spain once residence is properly established.
The complication for American citizens is the treaty's saving clause, which lets the United States tax its own citizens as though the treaty did not exist. So a US citizen in Spain can be taxed by both countries on the same IRA distribution: Spain under IRPF, and the US under the Internal Revenue Code. The treaty does not make that double charge disappear on its own — it is resolved through the foreign tax credit, which we come to below. Our overview of the US-Spain tax treaty, pensions, Social Security, dividends and the saving clause goes through this mechanism in detail.
What happens with RMDs once I am a Spanish resident and turn 73?
Under current US rules (as of 2026), a Traditional IRA owner must begin taking required minimum distributions (RMDs) starting at age 73. The RMD is a US concept — Spain has no equivalent forcing you to draw down a foreign account — but it creates a real Spanish tax consequence, because each RMD is a distribution, and each distribution is taxable in Spain as employment income.
Practically, this means that from 73 onwards you will have a Spanish-taxable event every single year, whether you want the cash or not. The US forces the withdrawal; Spain taxes it in the general base. Because RMDs are periodic rather than a single lump sum, they generally will not qualify for the 30% irregular-income reduction. For a retiree with a large IRA, this recurring general-base charge can push other income into higher brackets, so the interaction with any Spanish or US pension, Social Security, and investment income needs to be modelled year by year. See also how US Social Security benefits are taxed in Spain, since the two often land in the same tax return.
Are 401(k)-to-IRA rollovers taxable in Spain?
A direct rollover from a 401(k) into a Traditional IRA is, done correctly, not a taxable event in Spain. The reason is straightforward: you have not received any income. In a proper direct (trustee-to-trustee) rollover there is no constructive receipt — the money moves from one deferred vehicle to another, and the account simply becomes an IRA instead of a 401(k) for future reporting and distribution purposes. No cash reaches you, so there is nothing for Spain to tax.
The risk lies in doing it badly. If funds are paid to you first and you re-deposit them (an indirect rollover), or if the paperwork suggests you took a distribution, Spain may argue that a distribution occurred — and try to tax it as employment income even though you intended only to move the money. If you are already a Spanish tax resident, insist on a clean direct rollover and keep the custodian documentation showing there was no distribution.
How does Spain view a Roth conversion?
A Roth conversion — moving money from a Traditional IRA into a Roth IRA — is deliberately a taxable event in the United States: you pay US income tax now so that future qualified withdrawals are tax-free. The trouble is that Spain does not grant the Roth its tax-free treatment, so a conversion carried out while you are a Spanish resident can be the worst of both worlds. Spain may treat the converted amount as a distribution and tax it as employment income in the general base, and you will not later recover that cost because Spain will still tax the future Roth earnings as savings income when they come out.
In short, converting after you have become a Spanish resident often means paying full Spanish tax on the conversion without buying yourself the Spanish tax exemption a Roth enjoys in the US. If a conversion makes sense in your overall plan, the time to consider it is generally before Spanish residency begins, not after. This is a decision to model carefully with advice on both sides.
What about US withholding for American citizens?
US custodians often apply default withholding to IRA distributions. Once you are a treaty resident of Spain, the pensions article should, in principle, point the primary taxing right to Spain, and you may be able to reduce US withholding by giving your custodian a Spanish certificate of tax residence and the appropriate US tax forms. But the saving clause preserves the US right to tax its own citizens, so for an American the practical outcome is usually that you file in both countries and reconcile through the foreign tax credit rather than eliminating US tax outright. Coordinate the withholding position with your US preparer so that the amounts withheld broadly match the tax that will actually be due.
How does the foreign tax credit (Article 80 LIRPF) prevent double taxation?
Because the same IRA distribution can be taxed in both countries, relief is essential. It flows in two directions.
On the Spanish side, Article 80 LIRPF grants a credit (deducción por doble imposición internacional) for foreign tax paid on foreign-source income, up to the lower of the tax actually paid abroad and the Spanish tax that would correspond to that income. On the US side, the foreign tax credit allows US tax to be reduced by foreign tax paid. The practical difficulty is sourcing: an IRA distribution is generally US-source income, which constrains how freely each credit can be used, and American expats frequently end up with excess, only partially usable credits. This is precisely why Spanish and US advice have to run in parallel — the credit only works cleanly when both returns are prepared with the same figures and the same sourcing assumptions.
Do I have to report my Traditional IRA on Modelo 720?
Yes, in most cases. A Traditional IRA held at a US financial institution is a foreign asset and falls within the reporting scope of Modelo 720, Spain's foreign-asset declaration. It is reported in the securities/rights category, and the obligation is triggered when the aggregate value of assets in that category exceeds €50,000. You report the market value at 31 December, converted to euros.
Two points catch people out. First, the reporting obligation exists even in years when you take no distribution and owe no income tax — Modelo 720 declares the existence and value of the asset, not any tax on it. Second, after an initial filing you generally only need to re-file if the balance rises by more than €20,000 over the last reported figure, or if there is a structural change (account closed, transferred, or merged). Since the 2022 Court of Justice of the EU ruling, the old confiscatory penalty regime has been replaced, but late or missing filings still carry ordinary penalties, so keep the deadline (31 March) in view.
Does the Beckham Law help with a Traditional IRA?
It can, during its window. Under the special expatriate regime (Article 93 LIRPF, the "Beckham Law"), a qualifying inbound worker is taxed broadly as a non-resident and, in general terms, foreign-source income falls outside the Spanish charge. IRA distributions, being US-source, would generally not be subject to Spanish IRPF during the Beckham period, which typically runs for the arrival year plus five more.
But there are two catches. The Beckham regime is designed for people moving to Spain to work, so a retiree living off an IRA usually will not qualify in the first place. And even where someone does qualify, the regime does not remove the Modelo 720 obligation — Beckham taxpayers remain formal Spanish residents and must still report. Where it is available, timing larger IRA distributions inside the Beckham window, rather than after it expires into the ordinary regime, can be a significant saving.
A worked example: Robert's IRA distribution
Robert, a retired US engineer, has been a Spanish tax resident in Valencia since 2024. In 2026 he takes a $60,000 distribution from his Traditional IRA (assume roughly €55,000 at the exchange rate applied). Because the whole account was pre-tax, Spain treats the full €55,000 as employment income in the general base. If this stacks on top of his other income at a combined marginal rate of, say, 43%, the Spanish charge on the distribution is in the order of €23,000 before any credit.
In the US, the same distribution is ordinary income, but the foreign tax credit lets Robert offset US tax with the Spanish tax paid on that US-source income — so, subject to the sourcing limits, he is not usually paying the two charges on top of each other; he is paying broadly the higher of the two. Had Robert instead taken this as part of a single career-spanning lump sum, he might have accessed the 30% irregular-income reduction, taxing only about €38,500 — but as a standalone periodic withdrawal it does not qualify. The figures are illustrative; the point is that classification, timing and the credit together decide the real cost.
What are the most common and expensive mistakes?
Assuming savings rates apply — budgeting for 19%–30% when Spain will tax the distribution as employment income at general-base rates.
Converting to Roth after moving to Spain — paying full Spanish tax on the conversion without gaining any Spanish exemption.
An indirect rollover gone wrong — letting the cash pass through your hands and handing Spain an argument that a taxable distribution occurred.
Ignoring RMDs in the Spanish return — forced US withdrawals from 73 are fully taxable in Spain and must be declared every year.
Skipping Modelo 720 — assuming that because no distribution was taken, nothing needs reporting.
Filing the two countries in isolation — mismatched figures or sourcing break the foreign tax credit and can create real double taxation.
Pre-move checklist for Traditional IRA holders
Map the account — total balance, pre-tax vs. any after-tax basis (Form 8606), and expected RMD start date.
Model the classification — general-base employment income, not savings income, and the effect on your marginal rate in your chosen autonomous community.
Consider timing before residency — any Roth conversion or large withdrawal is usually cleaner to execute while still a US-only taxpayer.
Check Beckham eligibility — only if you are moving to work; if eligible, plan distributions inside the window.
Line up dual filing — a Spanish lawyer and a US preparer working from the same numbers so the foreign tax credit holds.
Calendar Modelo 720 — 31 March each year once you cross the €50,000 threshold.
Keep clean rollover paperwork — direct, trustee-to-trustee, with documentation that no distribution occurred.
Talk to a lawyer before you draw down
The Spanish treatment of a Traditional IRA is decided long before the money leaves the account — by where you are resident, when you withdraw, how the paperwork reads, and whether the two tax returns are built together. If you hold a Traditional IRA and live in Spain, or are planning the move, get the sequence right the first time.
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This article is general information as of 2026 and does not constitute legal or tax advice. Spanish and US tax law, DGT criteria and treaty practice change; every situation is different. Obtain individual advice before acting. Jacob Salama, Salama Legal SLP (Bar no. 11.294, ICA Málaga).