If you are planning to retire in Belgium and you have one or more Individual Retirement Accounts (IRAs) in the US, there are some important tax considerations to keep in mind. Those building up occupational pensions abroad need to be aware of the impact of Belgian taxes on their future income.
An IRA is a personal savings plan that allows you to save for retirement with tax-free growth or on a tax-deferred basis. Types of IRAs include traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plan for Employees (SIMPLE) IRAs. An IRA is a long-term savings account that is designed primarily for self-employed people who do not have access to workplace retirement accounts such as the 401(k), which is available only through employers. With a traditional IRA you pay no taxes on its earnings until retirement, when withdrawals are taxed as income. Contributions to a Roth IRA have typically already been taxed, which normally results in tax-free withdrawals at retirement. You can also have the option to rollover your contributions from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA. Whether there will be tax consequences in that case depends on the type of rollover.
Generally, Belgian tax residents are taxable in Belgium on their worldwide earnings, including their foreign pensions. Your becoming liable for taxation in Belgium does not mean that you will have to pay tax in Belgium on your US income. In a cross-border context, one first needs to look at the Double Taxation Agreement (DTA) with the US to determine whether Belgium is authorized to tax the US pension income. Subsequently, Belgian domestic tax law is applied to determine the amount of tax due (if any).
According to Article 17(1)(a) of the US-BE DTA, pensions and other similar remunerations in consideration of past private employment are taxable in the beneficiary’s country of residence. This means that if an US pension is paid out to an US citizen living in Belgium, this is taxable in Belgium and vice versa. As a result, any distribution from a traditional IRA at retirement would be subject to income taxation in Belgium.
In general, if a pension is paid out as a monthly or periodical interest, it qualifies as (deferred) professional income and is taxable at the progressive tax rates from 25% up to 50%. Any extra-legal pension that supplements the statutory pension can also be paid out as a capital lump-sum distribution with a tax rate as low as 10%. Distributions from a Roth IRA or a post-tax retirement account, should normally remain exempt from tax in Belgium on the basis of Article 17(1)(b) US-BE DTA. Belgian tax residents are exempt from tax in Belgium to the same extent the distribution would be exempt from tax in the US when received by a US resident.
TAXPATRIA® can assist you in determining the tax treatment of your US pension(s) and help you better understand the tax consequences of your planned retirement in Belgium.