How is your US pension taxed in the Netherlands?
There are different types of pensions in America. The type of pension determines whether it is taxed in the Netherlands or the United States. The type of pension is also important to determine the taxation (is it considered a pension or capital in the Netherlands?). In this article, we list the most popular pensions.
State pension from the US
In the Netherlands, you have to state your worldwide income, including the pension. However, according to the tax treaty between the Netherlands and United States, an American state pension is taxed in the United States. That is why, in this case, you will always have a tax liability with the IRS (US tax authorities).
As a taxpayer in the Netherlands, you state this state pension in box 1 (income from work and home ownership). Fortunately, you can claim an exemption for the pension that is taxed in the US in the Netherlands: the double tax relief. Even though this pension is not taxed in the Netherlands, it is included in the calculation of the social security contribution.
401k pension
A 401k plan is a retirement account made available to employees who wish to save for their retirement, set up by some employers. The employer holds back a part of the employee’s salary and places it in an account (on which you receive interest). What makes the 401k retirement plan so popular is that the investment is deducted from your gross salary, and you only pay tax on it when it is paid out. In addition, some employers are even willing to match the contributions made by their employees with additional money.
But what if this is paid out to you when you live in the Netherlands? According to the tax treaty between the United States and the Netherlands, the Netherlands may levy tax. The Netherlands sees this as a pension and, therefore, it is taxed in box 1. The total value of the 401k is not seen as capital, so it is not taxed in box 3 (savings and investments).
IRA (Individual Retirement Account)
Not all employers offer a 401k plan. A good alternative is an IRA, which stands for “Individual Retirement Account”. An IRA is an investment account to save for your retirement with tax-free growth. You can deposit money from your gross salary. It looks a lot like the 401k plan. However, it’s more common to invest yourself in an IRA than in a 401k. In addition, you don’t have an employer that deposits an additional amount to the account.
Taxation on a traditional IRA works the same as on a 401k. The payouts from an IRA are taxed in the Netherlands as a pension (box 1). The total assets in the IRA are therefore not taxed in box 3.
Roth IRA
A Roth IRA is also a retirement investment account and works the same as a regular IRA. However, there is a big difference in tax. Contributions to a Roth IRA are made with after-tax dollars. That means you pay tax upfront, not when it is paid out (during your retirement).
For this reason, Roth IRA is not seen as a pension in the Netherlands. Instead, the Dutch tax authorities see this as assets, which means you don’t pay tax on it in box 1, but in box 3 (savings and investments).
Help with your US pension in the Netherlands?
Do you receive a pension from the United States? That makes your tax return more complex. Make sure you don’t pay double tax. Do you want help with this, or do you have questions about your US pension? We are happy to help you. Feel free to contact us using the details below.
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