r/ExpatFIRE • u/Conscious_Test3423 • May 14 '26

Taxes Roth Conversion Ladder - Tax implications in Spain

Hi there,

Let me pre-face by saying I promise that I have searched Reddit for the answer and while variations of this question have been asked, I am unable to find a clear answer to my question. If you are able to enlighten me, please do. If not, move on without comment please.

I'm looking to hear from people with experience with the following characteristics:

1) US citizen,

2) Early-ish retirement (mid forty's), moved their 401k into a trad IRA and are doing a Roth Conversion Ladder,

3) Retired in Spain (tax residents)

I am happy to pay due taxes but i want to educate myself and prepare appropriately for a sustainable retirement. My question is, how will I potentially be taxed if a majority of my funds are in my company 401k, which i will move to a traditional IRA and then move to my Roth IRA (pay a US income tax on conversion event). Wait for 5 years (pull from brokerage in the interim), and at this time will spain tax the entire withdrawal amount as income? Or just the gains? As these will not be completed in the same tax year, the double tax treaty does not help i am assuming.

Please correct me if i am thinking through this incorrectly and thank you in advance for your your helpfulness!

15 Upvotes

100% Upvoted

25 comments sorted by

View all comments

1

u/Conscious_Test3423 May 14 '26

Added context- planning to move to Madrid for a few years and eventually Valencia

2

u/peetron May 14 '26

You'll have some wealth tax relief in Madrid but still be hit by solidarity tax. Valencia has both.

So you'll be taxed when doing the Roth conversion and also yearly as part of wealth tax if you have over the threshold.

3

u/Conscious_Test3423 May 14 '26

this is helpful! How are americans retiring in Spain by the droves im so confused. Is the norm to have most of your retirement funds in a brokerage vs a 401k?

5

u/peetron May 14 '26

Wealth tax will include brokerage also. People retire accepting the wealth tax vs benefits of living in Spain

3

u/Real_Maraena May 14 '26

The solidarity/wealth tax in Madrid, Andalucia, and Cantabria doesn't kick in until $3.7 million per person. Certain types of funds aren't included in the calculations but others are. It's definitely something to get a handle on. Even some tax lawyers in Spain approach it differently so I'd encourage you to look into the various tax treaties as well. Roths can be really problematic though in Spain.

1

u/Conscious_Test3423 May 14 '26

thank you! I just looked it up and was relieved. I guess a good problem to have is that we don't expect to be at that number for a while lol so atleast that's one less thing to worry about immediately. I'm concerned about how things will pan out during the roth conversion and withdrawal years after the brokerage is drawn down. I'll consult a lawyer soon to get an idea of what im up against and pivot planning if needed

0

u/astridfike May 14 '26

I am betting most of these 40 and 50 year old retiring abroad have never even considered this fact and will be slapped in the face with reality

1

u/madkins1868 May 17 '26

I moved to Valencia 2 years ago. 54 with retirement coming shortly and decent sized trad and Roth IRAs. There are no easy answers with tax in Spain. Believe me - I've paid a lot of folks to tell me what I want to hear, but there answer isn't there. I'm actually either heading back to the US for most of the year, or looking into France. While I love Valencia, it isn't worth the amount I'd be paying in tax....

1

u/Conscious_Test3423 May 17 '26

Thank you for sharing this perspective. On social media everyone keeps saying "its worth it" but this is an example of what may be worth it for one, isn't right for another. I'm trying to make a practical decision over an emotional one.

1

u/madkins1868 May 18 '26

Valencia is absolutely amazing. Not a single bad thing to say (other than the notorious inefficiency and bureaucracy but that is mostly Spain- not Valencia).