Summary
Individuals who spend a limited period working in the United States often accumulate retirement savings through a 401(k) (or similar) plan and must assess their options once they leave the U.S. and return to their home country. In many cases, former employees are practically unable to retain their 401(k) due to plan rules, employer policies, or restrictions following the end of their U.S. employment or residency.
A tax-free rollover into an Individual Retirement Account (IRA) is therefore often the most practical solution, as it allows the pension capital to remain within the U.S. retirement system, stay invested until retirement, and preserve tax deferral. However, the Belgian tax implications—particularly at the time of retirement—can be decisive and should be carefully assessed in parallel when determining the most appropriate course of action.
We have recently obtained a positive tax ruling from the Belgian Ruling Office confirming the tax-free treatment of distributions from a U.S. IRA. This ruling addresses the situation where benefits accrued under a U.S. 401(k) are rolled over into a Traditional IRA and confirms that such distributions may qualify for tax-free treatment in Belgium (Decision Nr. 2025.0899, dd. 13 January 2026).
Facts
In the case submitted to the Belgian Ruling Office, the taxpayer had worked in the United States for several years and accrued pension rights under an employer-sponsored 401(k) plan, which were subsequently transferred, via a tax-neutral rollover, into a Traditional IRA upon the taxpayer’s return to Belgium in the early 2000s.
Key elements of the factual situation were the following:
- The 401(k) contributions were made while the taxpayer was living full-time in the U.S. and was therefore not a Belgian tax resident at that time.
- No Belgian tax benefit or deduction was ever claimed in respect of the contributions to the plan.
- The rollover from the 401(k) to the Traditional IRA was carried out upon the individual’s return to Belgium, in full compliance with U.S. tax rules, and did not constitute a taxable event in the United States.
- After the rollover, no further contributions were made to the IRA, but the pension capital increased significantly in value over the last few years.
Now that the taxpayer has reached retirement age, a lump-sum withdrawal from the IRA is being considered, which raises the question of its Belgian tax treatment.
Belgium’s right to tax
Article 17(1)(a) of the Belgium–U.S. tax treaty provides that pensions and similar remuneration are taxable only in the beneficiary’s country of residence, meaning that the distributions from the IRA plan in this case are taxable in Belgium. Accordingly, while the Belgium–U.S. tax treaty allocates the taxing right to Belgium, the manner in which an IRA is taxed in Belgium depends on Belgian domestic tax law. Under Belgian tax principles, foreign pension arrangements are assessed based on their economic and legal characteristics, rather than on their foreign qualification.
The ruling confirms that an IRA is, for Belgian tax purposes, comparable to a (non-fiscal) Life Insurance Policy. Such distributions from an individually concluded Life Insurance Policy are, in principle, taxable as a pension within the meaning of the Belgian Income Tax Code. However, Belgian tax law provides an important exemption: if no Belgian tax advantage was ever granted for the contributions paid into the plan, under certain conditions, the payout is exempt from Belgian income tax. In the case at hand, those conditions were met. As a result, the Belgian Ruling Office confirmed that the planned distribution from the IRA would not be taxed in Belgium.
Why the IRA Rollover matters
A key element of the ruling is that it focuses on the nature of the arrangement at the time of payout, rather than on the historical origin of the capital. Although the funds initially stemmed from a 401(k) plan, the Belgian tax authorities confirm that, once a tax-neutral rollover into an IRA has taken place, only the characteristics of the IRA at the moment of withdrawal are relevant for Belgian tax purposes.
Key elements include the existence of a formal individual contract, the absence of any Belgian tax incentive during the accumulation phase, the fact that the investment risk is fully borne by the individual, the investment-based nature of the capital (similar to a Branch 23 policy), the free designation of beneficiaries, and the purely administrative role of the U.S. broker or custodian.
It is also important to distinguish between different types of IRAs. The above considerations mainly apply to Traditional (pre-tax) IRAs, for which distributions are normally taxable in the United States. This is different for Roth IRAs, which are funded with post-tax contributions and allow for tax-free U.S. distributions afterwards, if the applicable conditions are met. This approach is generally followed by Belgium under the tax treaty.
U.S. citizenship and Green Card status
The favorable Belgian tax treatment confirmed in this ruling does not affect the application of U.S. tax law. U.S. citizens and U.S. Green Card holders remain subject to U.S. worldwide taxation under the Savings Clause, regardless of their Belgian tax residence. As a result, distributions from a pre-tax IRA will generally remain taxable in the United States upon retirement, even if Belgium grants a tax exemption, which may significantly limit the practical relevance of this exemption.
In some cases, individuals may consider relinquishing U.S. citizenship or long-term resident status, but this is a complex decision that must be carefully reviewed from the U.S. side, particularly in light of potential U.S. exit tax and related filing obligations.
Key Takeaway
This ruling is highly relevant for many former U.S. workers who accumulated U.S. pension rights and later returned to Belgium. For individuals holding a dormant U.S. IRA and approaching retirement, who remain uncertain about its Belgian tax treatment, this ruling provides a clear and robust framework for further tax optimization.
For individuals who worked in the U.S., rolled their 401(k) (or similar plan) into an pre-tax IRA, and later became Belgian tax residents, this ruling (re)confirms that a properly structured IRA distribution can be fully exempt from Belgian income tax.
As always, the exact outcome depends on the factual timeline, residency status, and U.S. tax profile of the individual. A careful, case-by-case analysis therefore remains essential.