Individuals who become tax resident in Spain while holding U.S. retirement savings often assume that pension rollovers remain tax-free simply because they are neutral under U.S. law. In practice, this assumption can be risky. Spain taxes its residents on worldwide income, and U.S. pension movements may trigger Spanish tax consequences unless specific treaty conditions are met.

This issue is especially relevant for holders of IRAs, SEP IRAs, and similar U.S. retirement vehicles who reorganise or consolidate their pension arrangements after relocating to Spain.

Why pension transfers raise tax issues in Spain

Spanish tax law does not expressly regulate U.S. pension schemes. Instead, it focuses primarily on pension plans governed by Spanish or EU legislation. As a result, transfers between U.S. retirement accounts historically existed in a grey area: rollovers were tax-deferred in the United States, but their treatment under Spanish tax rules was uncertain.

The risk lies in the fact that Spain may treat certain pension movements as a taxable distribution, even where no cash is received by the individual, unless treaty protection applies.

Recent guidance from the Spanish tax authorities

A recent binding ruling issued by the Spanish Directorate-General for Taxation (DGT), V0251-25, has significantly clarified this issue. The ruling confirms that, under certain conditions, transfers of pension rights between U.S. retirement schemes may avoid immediate taxation in Spain.

This outcome relies not on Spanish domestic law, but on the interpretation of the Spain–United States Double Tax Treaty (Spain–US DTT), as amended by the 2019 protocols and memoranda.

What qualifies as a pension scheme under the treaty?

The treaty adopts a broad, functional definition of “pension scheme.” Importantly, several common U.S. retirement arrangements fall within its scope, including:

• 401(k) plans established under section 401(a) of the Internal Revenue Code
• SEP IRAs governed by section 408(k)
• Roth IRAs under section 408(a)

This classification is decisive. Only transfers between schemes that meet the treaty definition can benefit from the tax deferral mechanism.

How tax deferral works in practice

Article 20.5 of the Spain–US DTT allows Spain to defer taxation where pension rights are moved between qualifying U.S. pension schemes, provided the individual does not gain access to the funds.

In practical terms, Spain will generally not tax the rollover if:

• The transfer occurs directly between qualifying pension plans
• The individual never receives or controls the funds
• The pension rights remain within the U.S. retirement system

Taxation is postponed until a later taxable event, such as retirement or another permitted distribution.

Common pitfalls that may trigger taxation

The protection offered by the treaty is highly technical. Spanish tax authorities may treat a rollover as taxable if:

• The funds are paid into the individual’s personal bank account, even temporarily
• The receiving vehicle does not qualify as a pension scheme under the treaty
• The transfer is incorrectly structured or documented

In these cases, Spain may tax the entire amount as employment or pension income in the year of transfer, although limited relief may be available depending on the facts

.

Cross-border transfers remain excluded

It is important to distinguish internal U.S. rollovers from cross-border pension transfers. Moving pension rights from a U.S. plan into a Spanish pension scheme does not benefit from treaty deferral and is generally treated as a taxable event in Spain.

While Spain offers tax neutrality for transfers between Spanish pension plans, its authorities have historically resisted extending equivalent treatment to non-Spanish or non-EU schemes, even where economic comparability exists.

Practical takeaway

For U.S. taxpayers living in Spain, pension rollovers require careful planning. A transaction that is tax-neutral in the United States may produce unexpected Spanish tax exposure if treaty conditions are not strictly respected. Proper structuring, documentation, and timing are essential.

Contact us

If you are a U.S. pension holder living in Spain, or planning to relocate, professional advice is essential before restructuring or transferring retirement assets. Each situation is highly fact-specific, and incorrect execution can lead to unexpected tax exposure.

If you would like to discuss the Spanish tax treatment of U.S. pension plans, rollovers, or cross-border retirement planning, please contact us  for tailored advice.