Spain does not recognise the Roth IRA's tax-free status. Distributions, accumulated gains and the Modelo 720 obligation create a complex compliance picture for US citizens living in Spain. Here is a complete analysis based on DGT binding consultations and the 1990 US-Spain tax treaty.
The Roth IRA is one of the most tax-efficient savings vehicles in the United States: contributions are made from after-tax dollars, the account grows free of US tax, and qualified distributions in retirement are entirely tax-free under US law. For US citizens who move to Spain, however, this attractive tax-free status creates a fundamental conflict — Spain does not recognise the Roth IRA's privileged treatment, and Spanish tax law applies its own rules regardless of the US characterisation of the account.
This article analyses the Spanish tax treatment of Roth IRAs in detail, drawing on the relevant provisions of the Ley del IRPF, the 1990 Spain-US Double Tax Treaty (the "Treaty"), and the published DGT binding consultations (consultas vinculantes) that govern how the AEAT approaches these structures.
The 1990 Convention between Spain and the United States for the Avoidance of Double Taxation (the "Spain-US Treaty") was negotiated before Roth IRAs existed — the Roth IRA was created by the Taxpayer Relief Act of 1997, seven years after the Treaty was signed. As a result, the Treaty does not contain specific provisions for Roth IRAs, and there is no protocol or competent authority agreement that has been publicly ratified to address this gap bilaterally.
The Treaty does contain provisions relating to pension income (Article 18) and other government-related pensions (Article 19), but the question of whether a Roth IRA falls within the scope of the Treaty's pension provisions — and if so, which article governs — has been addressed primarily through domestic DGT binding consultations rather than through bilateral agreement. This creates a degree of interpretive uncertainty that requires careful case-by-case analysis.
The contrast with the more modern US-UK treaty is instructive. The US-UK treaty (2001) contains explicit provisions in its protocol regarding IRAs and UK personal pensions, providing for mutual recognition of the tax-deferred status. The Spain-US Treaty has no equivalent provision, which is why the DGT has had to fill the gap through its consulta vinculante process.
The Dirección General de Tributos (DGT) — Spain's tax authority responsible for issuing official interpretations of tax law — has addressed the taxation of US pension accounts, including Roth IRAs, in a series of binding consultations (consultas vinculantes). These rulings are binding on the AEAT in respect of the taxpayer who requested them and provide the primary interpretive framework for cases not yet litigated. The full texts are searchable at petete.tributos.hacienda.gob.es.
The DGT has addressed the treatment of US Individual Retirement Accounts (IRAs) for Spanish tax residents who previously worked in the United States. The DGT's position is that contributions made to an IRA when the taxpayer was resident in the US, and the investment returns accumulated within the account during the US residency period, were attributable to the US and potentially covered by the Treaty's pension provisions. However, distributions received while the taxpayer is a Spanish tax resident are subject to Spanish IRPF.
The DGT draws a distinction between the source of the income (contributions and accumulated growth) and the moment of taxation (the distribution). Under the IRPF framework, the critical question is the character of the distribution — whether it constitutes a pension (rendimientos del trabajo), a capital gain, or a return of contributions (no income, as it represents the taxpayer's own after-tax capital).
DGT binding rulings addressing the Roth IRA confirm that, as a vehicle funded with after-tax contributions, the Roth IRA presents a specific allocation problem:
A critical question addressed in DGT binding rulings is: does Spain tax Roth IRA investment returns on an annual accrual basis (as they arise within the account) or only when distributed? This matters enormously for planning: if Spain applies annual mark-to-market taxation to the account, you face a tax charge every year even if you never take a distribution. If Spain waits until the distribution, you can potentially defer Spanish taxation for decades.
The DGT's published position is that Spain applies a distribution-based approach to foreign pension-type vehicles — i.e., Spanish IRPF is triggered when income is received (when the distribution is made), not when it accrues within the account. However, the DGT has also noted that undistributed income within a Roth IRA does not receive the same deferral treatment as a formally recognised Spanish pension plan, and that the annual Modelo 720 reporting obligation means the AEAT has visibility into the account's value each year.
This distribution-based approach is broadly consistent with the Spanish general rule for movable capital income: taxation upon receipt (Article 14 LIRPF). But it conflicts with Spain's treatment of certain foreign investment vehicles — for example, shares in non-EU collective investment institutions may be subject to attribution-based annual taxation under different rules.
Assuming the DGT's framework applies — distributions taxed as rendimientos del capital mobiliario at the time of receipt — the applicable IRPF rates are the savings income (base imponible del ahorro) rates, not the general income rates. For 2025, the savings income tax scale is:
| Taxable Savings Income | IRPF Rate |
|---|---|
| Up to €6,000 | 19% |
| €6,001 – €50,000 | 21% |
| €50,001 – €200,000 | 23% |
| €200,001 – €300,000 | 27% |
| Over €300,000 | 28% |
These rates apply to the taxable portion of the distribution — i.e., the portion attributable to accumulated investment returns, not the return of contributions. To compute the taxable portion, the taxpayer must allocate the distribution between the original after-tax contribution basis and the earnings accumulated over the account's life.
Example: Suppose a Roth IRA was funded with $200,000 of after-tax contributions over the years, and the account is now worth $500,000 at the time of the first distribution. The contributions represent 40% of the account's value; investment returns represent 60%. If the taxpayer takes a €50,000 distribution (converted at the applicable EUR/USD exchange rate), €30,000 would be treated as taxable investment return income, and €20,000 as a tax-free return of contributions.
For a US citizen, Roth IRA distributions are not subject to US federal income tax (assuming qualified distributions). This creates a foreign tax credit (FTC) problem: in Spain, you have a taxable IRPF liability on the Roth distribution. You cannot offset it with a US tax credit, because no US tax was paid on that distribution. You face a Spanish tax charge that is not relieved by any US tax paid — a double economic burden arising precisely from the mismatch between the two countries' treatment of the account.
The Foreign Earned Income Exclusion (FEIE) is also irrelevant here: Roth IRA distributions are not earned income and cannot be excluded under FEIE even if the taxpayer is eligible to use that mechanism.
The only potential avenue for reducing the Spanish tax charge is the Treaty's pension article (Article 18), which provides that pensions and other similar remuneration paid to a resident of Spain in consideration of past employment shall be taxable only in Spain. If a Roth IRA distribution could be characterised as a pension payment (a debatable but potentially arguable position), then Spain would have exclusive taxing rights — which is what Spain already asserts — and no US tax would be due, potentially eliminating the double taxation at least at the domestic level. However, the practical benefit of this characterisation is limited because Spain already claims full taxing rights regardless of Treaty classification.
A Roth IRA held at a US brokerage or financial institution is a foreign financial account and falls squarely within the reporting scope of Modelo 720. Specifically, it must be reported under Obligation 2 (securities, rights, insurance and annuities held at foreign financial institutions — Article 42 ter of RD 1065/2007) if the aggregate value of all reportable assets in that category exceeds €50,000.
The value to report is the market value of the Roth IRA at 31 December of the relevant tax year, converted to euros at the official ECB exchange rate. The fact that the account may not be accessible for years without penalty under US law (i.e., before age 59½) does not reduce the reporting obligation: what matters is the economic value of the right, not its current liquidity.
Critically, the entire account value is reported — not just the investment returns or the "Spanish-taxable" portion. Modelo 720 is an informative declaration of the existence and value of the foreign asset, without regard to its internal Spanish tax characterisation.
The Modelo 720 filing for a Roth IRA is independent of, and does not replace, the IRPF declaration of any distributions received during the tax year. You may need to file Modelo 720 (to report the account's existence) even in years when no distribution was made and therefore no IRPF is due on the account.
Taxpayers who have opted for Spain's special expatriate tax regime (Beckham Law, Art. 93 LIRPF) are taxed as non-residents on most foreign-source income. Roth IRA distributions, as income sourced in the United States, would generally fall outside the Spanish IRPF charge for a Beckham Law taxpayer — the income would be treated as foreign-source income not subject to IRPF under the Beckham regime.
However, the Beckham Law does not affect the Modelo 720 obligation. Beckham Law taxpayers remain formal Spanish tax residents and must file Modelo 720 if the thresholds are exceeded.
From a planning perspective, taking large Roth IRA distributions during the Beckham Law period (typically up to 6 years) may represent a significant tax advantage: distributions received while the Beckham Law is in force would not be subject to Spanish IRPF, whereas the same distributions received after the Beckham Law expires would be fully taxable. This is an important pre-migration and post-migration planning consideration for US executives and professionals moving to Spain.
A Spanish tax resident who inherits a Roth IRA from a US person faces an additional layer of complexity. The inheritance itself may be subject to Spain's inheritance and gift tax (Impuesto sobre Sucesiones y Donaciones, ISD), depending on the applicable rules. The autonomous community (comunidad autónoma) in which the beneficiary resides determines both the rate and the available reductions and bonifications — and these vary dramatically across Spain. Madrid and several other communities effectively exempt close family members from ISD; Cataluña and other regions impose significantly higher charges.
After the inheritance is settled and the Spanish tax resident takes ownership of the inherited Roth IRA (often converted to an inherited IRA under US rules), subsequent distributions are subject to the same IRPF analysis described above. The cost basis for the Spanish IRPF analysis would be the fair market value at the date of inheritance (the "stepped-up basis"), meaning that all future distributions would be taxed as investment return income under the DGT's framework — even if, under US rules, the inherited Roth is also tax-free.
US citizens living in Spain retain their full US tax filing obligations. Roth IRA accounts must be considered in the context of:
Jacob Salama advises US citizens on the Spanish IRPF treatment of US retirement accounts, Modelo 720 reporting, and pre-residency planning strategies. Book a free 30-minute consultation to discuss your specific situation.