Understanding Italy's Taxation on U.S. Retirement Accounts
- Caesar Sedek
- May 20
- 3 min read
Updated: Jun 26
Italy's tax system treats U.S. retirement savings very differently. It is crucial to grasp these differences as you prepare for your new life in Italy.
Italy Cares About What Flows In, Not What It’s Called
The Agenzia delle Entrate couldn’t care less that back home you call it a 401(k), IRA, or “my precious Roth.” To them it’s either:
Pensione estera – a foreign pension stream
Investment income – dividends, interest, or capital gains
Which label you get depends on when and how you tap the account. Time it like a pension, get pension treatment. Smash the piggy bank early or in one fat lump, and Italy may re-badge the whole thing as straight investment income.
How the Big U-S Buckets Translate in Italy
Traditional or Rollover IRA
After 59½, paid regularly: Treated as pension income.
Early or lumpy withdrawals: Likely recast as investment income.
Treaty kicker: Article 18 of the U-S–Italy treaty says pensions are taxed only where you live. Once you’re resident in Italy, the U.S. steps aside.
401(k) (and cousins SEP, SIMPLE, Solo 401(k))
Same playbook as the Traditional IRA. Act like a pension and Italy will tax it as one. Act like a jackpot and they’ll call it investment income. Still shielded from U.S. tax by the treaty once you reside in Italy.
Roth IRA
The U.S. thinks “tax-free for life.” Italy does not. Contributions (your already-taxed principal) can come out untouched if you document them, but the growth is taxable as foreign investment income.
Roth still counts for the 7 percent flat-tax regime if you qualify—more on that in a moment.
Bottom line: Anything that walks and quacks like a pension is taxed only in Italy; anything that looks like a speculative payout gets Italy’s normal investment-income treatment.
Social Security—One Tax Only, Whoever You Are
Article 18 covers Social Security for every U-S citizen who becomes an Italian tax resident. Italy taxes it, the U.S. does not. Period. You still file your 1040, but the benefit is treaty-exempt on the U.S. side.
Two Italian Tax Paths
Standard progressive rates – 23 to 43 percent plus regional and municipal add-ons.
Southern-Italy flat 7 percent regime – Nine-year holiday on all non-Italian income—pensions and investment gains alike—if you settle in a qualifying town of ≤20 000 souls south of Rome and haven’t been an Italian tax resident in the prior five years.
Choose wisely: the 7 percent regime waives wealth-tax reporting (no dreaded Quadro RW), but you must opt in on your very first Italian return.
Tactical Moves Before the Plane Takes Off
Roth conversions – Do them while you’re still U.S.-resident; Italy can’t tax what hasn’t reached its shores.
Lump-sum IRA cash-outs – Same logic: better to eat the U.S. tax once than invite Italy to treat the payout as investment income later.
Document everything – Keep contribution records for Roths and cost basis for taxable brokerage accounts. Your Italian tax pro will thank you.
Compliance Cheat Sheet
Task | Why It Matters |
File U.S. returns forever | Citizenship never sleeps; you disclose global income, then cite the treaty for pension items. |
File Italian returns once resident | Declare worldwide income; pick the 7 percent regime if eligible. |
FBAR & FATCA (U.S.) / Quadro RW (Italy) | Even treaty-exempt income doesn’t exempt you from asset reporting—unless you’re on the 7 percent plan. |
Form 8833 | Attach only if your treaty claim isn’t a standard pension exclusion; most straightforward Article 18 claims don’t need it, but check with a pro. |
Final Sip of Reality
Traditional accounts behave nicely under the treaty but are never tax-free in Italy.
Roths lose their glitzy halo unless you shelter them under the 7 percent regime.
Social Security is Italy-only taxation—citizen, dual citizen, doesn’t matter.
Poor timing or sloppy paperwork can turn a leisurely retirement into a fiscal face-palm.
Need a second pair of eyes on your retirement income plan? Schedule a free call—because nothing ruins la dolce vita like a surprise tax bill from two countries at once.
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