Is a U.S. IRA account subject to the Italian Wealth Tax?

[robert1849]

It’s a given that as a tax resident in Italy I need to pay Italian taxes on any distribution I receive but is the IRA account itself subject to the annual wealth tax (roughly 0.02% of the 31 December balance)?

Edit: To clarify, I am not contributing to a U.S. IRA. I have one from when I worked in the U.S. many years ago. I am now retired, living in Italy and just started receiving distributions which I now must report when I file my Italian tax return. I consider this a pension account subject to Italian taxes on distributions - similar to a private pension established by a private company. The question is, how does the Italian revenue service see it? Is it subject to the wealth tax as well as income tax on money received?

 

[daprophecy]

@robert1849 Italian Tax Advisor here. More likely it's tax free until you start withdrawals

 

[robert1849]

@daprophecy Thanks, that what makes sense to me. Otherwise it is being taxed twice in Italy. Once on the balance as of 31 December of each year and again when you receive funds from the IRA pension account. You say however, "More likely...". Why the uncertainty?

 

[daprophecy]

@robert1849 In Italy details make the difference. We have the civil law here, so very often rules must be applied. I'm up for a free call if it's useful, what do you think?

 

[robert1849]

@daprophecy Thanks. I have DM'ed you. I appreciate your reply. I would still appreicate the input of others from their knowledge or experience.

 

[bible_boy]

@robert1849

It’s a given that as a tax resident in Italy I need to pay Italian taxes

Full stop here. You cannot apply the US tax code to an italian resident.

 

[plumbing101mike]

@bible_boy Actually you can, American citizens are essentially double taxed, first in their tax residence then again by the US. There are many exemptions that result in most not getting double taxed, but if you're an American citizen it's a mess.

The problem here lies with the fact that anyone paying into an American IRA cannot be an Italian tax resident. A US IRA is a tax advantaged account for people earning income in the US. You cannot have taxable US income and be an Italian tax resident.

 

[robert1849]

@plumbing101mike I have edited my original query to provide a bit more clarity.

 

[stan783]

@plumbing101mike Maybe a dumb question but if you are an American with an American job (W-9 included) and are paid in USD to an American account, but that work is done remotely in another country like Italy, which country is that taxable to?

 

[nathanh83]

@stan783 The employee and the employer need to follow the regulations, contributions, tax payments of the state/country where the employee lives.

 

[coralisa]

@plumbing101mike He said he started one when he worked in the US and he is retired now. I assume he had a 401k with a previous employer, and rolled it over to an ira, or did an ira it by himself. Either way it sounds like it is an old account and he does not contribute currently and probably didn't for many years maybe even decades. So it is possible to have such an account as a foreign citizen and retire in another country. I believe, in this case it depends on the country he is. Some countries don't recognize the tax advantage of those US accounts and he has to pay taxes in his tax bracket or whatever system they have in his home country. Isn't that money tax free once you hit 59.5 in the US? Means you technically have tax free income from an US source but be an Italian tax resident.

 

[robert1849]

@coralisa You have summarized my situation accurately. I have no doubt I will need to pay taxes in Italy on the income I derive from the IRA. My concern is whether Italy also wants to tax me on the end of year balance every year - which would be a double tax (tax on the balance at 0.2%) and again when I take money out (Income tax). I have done a bit of research and the answer is elusive - thus this reach out to anyone in this group who may know from experience.

 

[leticia]

@coralisa I like the message

 

[apjasper10]

@robert1849 What wealth tax? The Monti one on the balance of your brokerage account (portafoglio titoli)?

 

[robert1849]

@apjasper10 By "Weath Tax", I mean any tax on my foreign held IRA (Individual Retirement Account) aside from income derived from the account. In the U.S. and England, such accounts are not taxed until money is received. This is an account that has not received or distributed any funds from or to me since leaving the US - until last year when I retired and began receiving funds in Italy.

 

[coralisa]

@robert1849 Did you actively ask to receive money from the IRA account or do they just send you money. Sounds weird. Who are you with? Vanguard? You have to clarify with a local tax advisor. Some countries don't recognize the tax free status of retirement accounts in the US and you either have to pay income tax, stock gain tax, or whatever tax system you have in italy.

 

[robert1849]

@coralisa This is an IRA account established more than 20 years ago by my employer. Since moving to Europe in 1995 I have been unable to make further contributions so it has just been sitting there growing from interest and investment growth. Now I am retired and have started requesting distributions (as of last year). This will be reported as income on my 2021 Reddito (Italian tax return) and tax will be paid. My question is about whether this kind of foreign pension fund (IRA) is subject to further taxes (aside from the income I receive).

 

[srgnosis]

@robert1849 Did you find out? I have the same question

 

[robert1849]

@srgnosis No. I never found out and I do not report them as financial accounts in the same way I do not report my private company-sponsored pension annuity as a financial account. What I do is report the distributions I receive annually and name the source of that income. Not sure if this dots all the i's and crosses the t's but I can say I pay taxes on the income I receive.

Edit, I did find this blurb on a financial site so it would appear IRA accounts (pension accounts) are excluded.

"The wealth tax rate is generally 0.2% of the asset value, Bank accounts only pay a flat 34 (rounded down) tax, whereas public/gov pension funds are generally excluded from the wealth tax payment." Here's a link to a site you may find helpful.

Taxes in Italy for expats and non-residents: 2023 and 2024 | Experts for Expats