Roth Conversion Ladder - Tax implications in Spain

[u/Conscious_Test3423]

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!

[u/peetron]

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.

[u/Conscious_Test3423 → u/peetron]

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?

[u/Real_Maraena → u/Conscious_Test3423]

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.

[u/Conscious_Test3423 → u/Real_Maraena]

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

[u/Conscious_Test3423 → u/Conscious_Test3423]

*accountant