Yes, Spain taxes most US pensions if you live there as a tax resident, but the account type controls which country actually collects. Under the US-Spain Income Tax Treaty, US Social Security benefits are taxable only in the United States. Distributions from 401(k)s, Traditional IRAs, and other private retirement plans are taxable in Spain as ordinary income once you’re a Spanish resident. Spain may also apply its annual Wealth Tax to the balances sitting inside those accounts, whether or not you take a distribution.
When Spain Treats You as a Tax Resident
Everything below hinges on residency. Spain considers you a tax resident if you meet any one of three tests: spending more than 183 days in Spain during a calendar year, having your center of vital interests (spouse, dependent children, closest personal ties) in Spain, or having your primary economic activities based there. One is enough.
If both countries claim you, the treaty’s tie-breaker rules look at where you keep a permanent home, where your personal and economic ties are strongest, and where you habitually live, in that order.1Internal Revenue Service. Convention for the Avoidance of Double Taxation – US-Spain Treaty 1990 The winner becomes your primary taxing country under the treaty.
One boundary worth noting: Spain’s special impatriate regime (the “Beckham Law”) is built for workers relocating to Spain for employment, not retirees. Most people asking this question will not qualify.
Social Security: Taxed Only by the United States
The treaty gives the United States the exclusive right to tax the Social Security benefits it pays. If you’re a Spanish tax resident collecting US Social Security, Spain cannot impose its own income tax on those benefits.
The US, however, keeps taxing its citizens on Social Security under normal domestic rules. The treaty’s saving clause in Article 1, Paragraph 3 reserves that right.1Internal Revenue Service. Convention for the Avoidance of Double Taxation – US-Spain Treaty 1990 Up to 85% of your benefits can be included in US taxable income depending on your combined income.2Internal Revenue Service. Publication 915 – Social Security and Equivalent Railroad Retirement Benefits
You still report Social Security on your Spanish return (Modelo 100) and claim a treaty exemption.3Agencia Tributaria. Modelo 100 – Individual Income Tax Annual Return There’s a twist. Spain uses “exemption with progressivity”: the exempt Social Security amount is added back temporarily to calculate the average rate, and that higher rate then applies to your other Spanish-taxable income. If Social Security is your only US income, the effect is nothing. If you also draw 401(k) distributions in Spain, the rate bump can matter.
401(k) and Traditional IRA Distributions
Private pensions follow a different treaty rule. Article 20 of the US-Spain treaty gives your country of residence the exclusive right to tax private pension distributions.4Agencia Tributaria. Residents’ Brochures With Foreign Income – The United States As a Spanish resident, Spain taxes your 401(k) and Traditional IRA withdrawals as ordinary income under its progressive personal income tax (IRPF).
National IRPF rates combine with regional rates, so the actual burden varies by autonomous community. The national withholding scale gives a fair approximation:
- Up to €12,450: 19%
- €12,450 to €20,200: 24%
- €20,200 to €35,200: 30%
- €35,200 to €60,000: 37%
- €60,000 to €300,000: 45%
- Over €300,000: 47%
These rates hit your total general taxable income, not the pension distribution in isolation. A large one-time 401(k) withdrawal easily reaches the top brackets, which is why many expats spread distributions across several tax years.
Roth IRA Distributions
Roth IRAs create a real headache. In the US, qualified Roth distributions are tax-free because you contributed after-tax dollars. Spain doesn’t recognize that status. Because Roth contributions come from personal savings rather than an employer plan, the prevailing view among cross-border practitioners is that Roth distributions fall under the treaty’s residual income article, giving Spain exclusive taxing rights. Spain then treats the growth portion of each distribution as taxable savings income, while the portion representing your original contributions is a non-taxable return of capital. The gains get taxed; the US tax-free treatment does not carry over.
The Unrealized Growth Trap
Spain has no concept equivalent to a tax-deferred US retirement account. In theory, a Spanish tax office could argue that investment gains accruing inside your 401(k) or IRA are taxable each year, even before you touch the money. A 2013 protocol amending the treaty addressed this by specifying that income earned by a pension fund is taxable as the individual’s income only when it is actually paid out to the beneficiary.5U.S. Department of the Treasury. Protocol Amending the US-Spain Convention for the Avoidance of Double Taxation Be ready to cite it if a local office challenges your position.
How to Avoid Being Taxed Twice
The treaty exists to prevent both countries from taxing the same income at the same time, but you have to work the paperwork on both sides for the relief to actually happen.
Foreign Tax Credit on Your US Return
When Spain taxes your 401(k) or IRA distribution, the US relieves double taxation through the Foreign Tax Credit. You pay Spain, then claim that amount as a dollar-for-dollar credit against your US tax on the same income using Form 1116.6Internal Revenue Service. Foreign Tax Credit The credit is capped at the lesser of the actual Spanish tax paid or the US tax you would have owed on that income. If Spain’s rate is higher, the excess Spanish tax isn’t fully creditable.
Reducing US Withholding at the Source
By default, US plan administrators withhold 30% from pension distributions paid to foreign persons.7Internal Revenue Service. Plan Distributions to Foreign Persons Require Withholding Because the treaty reserves private pension taxation to Spain, you can file Form W-8BEN with the plan administrator to claim reduced or zero withholding, citing the relevant treaty article. Skip this step and 30% is withheld anyway, leaving you to chase a refund on a US return.
Getting the Sourcing Right
Each type of income has to be reported under the correct treaty article on both returns. Treating a 401(k) distribution as if it were Social Security, or the reverse, can void the credit or exemption you’re relying on. Match the income to the article on both the IRS filings and the Spanish Modelo 100.
Spain’s Wealth Tax on Retirement Account Balances
Income tax hits distributions when you take them. Spain’s Wealth Tax (Impuesto sobre el Patrimonio) hits the balance itself, every year, whether you touch the account or not. As a Spanish tax resident, your worldwide net assets are subject to this tax, and the balances in your 401(k), Traditional IRA, and Roth IRA all count.
A national exemption shelters the first €700,000 of net wealth. Above that, national progressive rates apply:
- First €167,129: 0.2%
- €167,129 to €334,253: 0.3%
- €334,253 to €668,500: 0.5%
- €668,500 to €1,337,000: 0.9%
- €1,337,000 to €2,674,000: 1.3%
- €2,674,000 to €5,348,000: 1.7%
- €5,348,000 to €10,696,000: 2.1%
- Over €10,696,000: 3.5%
Where you live in Spain changes the outcome dramatically. Each of the 17 autonomous communities can modify the exemption and rates. Extremadura currently offers full Wealth Tax relief. Andalusia, Cantabria, La Rioja, Madrid, and Murcia have structured deductions that effectively eliminate the tax for residents with net wealth below €3 million. The Balearic Islands and the Valencia Community raised their exemption threshold to €1 million but still apply the tax above that. Region selection can save tens of thousands of euros a year.
Solidarity Tax on Large Fortunes
Since 2022, Spain has layered a national Solidarity Tax on Large Fortunes on top of the regional Wealth Tax. It kicks in when your net assets exceed €3 million (after the €700,000 exemption):
- Up to €3,000,000: 0%
- €3,000,000 to €5,347,998: 1.7%
- €5,347,998 to €10,695,996: 2.1%
- Over €10,695,996: 3.5%
Any regional Wealth Tax you already paid is credited against the Solidarity Tax, so the two don’t stack. In regions that fully collect the Wealth Tax, the Solidarity Tax usually adds nothing. In regions that have wiped out the Wealth Tax, it fills the gap for high-net-worth residents.8European Commission. Solidarity Contribution on Large Fortunes and Wealth Tax in Spain If your worldwide net assets are below €3 million, this tax doesn’t reach you.
Reporting Obligations You Cannot Skip
Even in years when no extra tax is owed, missing an information return can trigger penalties on its own.
Spain’s Modelo 720
Spanish tax residents must file Modelo 720 with the Agencia Tributaria if the total value of foreign assets in any one of three categories exceeds €50,000. Your 401(k), IRAs, and Roth IRAs sit in the “foreign investments and financial assets” category. The return is due March 31, reporting values as of December 31 of the prior year.
The European Court of Justice struck down Spain’s original punitive Modelo 720 penalty regime in January 2022, and Law 5/2022 replaced it with the standard penalties in Spain’s General Tax Law, assessed independently for each of the three asset categories.9Agencia Tributaria. Modelo 720 – Sanctions and Effects Softer than before, but late or inaccurate filings still cost money and repeat non-compliance draws scrutiny.
US FBAR (FinCEN Form 114)
If you open Spanish bank or financial accounts whose combined value tops $10,000 at any point in the year, you have to file a Report of Foreign Bank and Financial Accounts with FinCEN.10FinCEN. Report Foreign Bank and Financial Accounts It’s filed electronically, separate from your tax return. Willful violations carry severe civil and criminal penalties. The FBAR covers your Spanish accounts, not your US retirement accounts, and it catches many expats out because it lives outside the normal tax-return workflow.
Deadlines to Track Each Year
- Spanish Modelo 720 (foreign asset declaration): March 31, reporting values as of December 31 of the prior year.
- US tax return (Form 1040): April 15, with an automatic two-month extension to June 15 for US citizens abroad, and a further extension to October 15 available on request.
- Spanish IRPF return (Modelo 100): filing period generally runs from early April through June 30.
- US FBAR (FinCEN 114): April 15, automatic extension to October 15.
- IRS Form 1116 (Foreign Tax Credit): filed with your US return.
The sequencing matters. Your Spanish return is due by June 30, but your US return (with the Foreign Tax Credit) is due April 15. Most expats file a US extension, complete the Spanish return first to lock in the foreign tax number, and then file the US return with the credit calculated correctly. Reversing the order doesn’t change what you owe but usually creates estimated payments and amended returns.