November 9, 2025
Perhaps retiring in Italy isn’t just a distant dream. In fact, maybe you’ve already started making plans – assessing visa types like the Elective Residence Visa (ERV) and exploring regions of Italy you might call home. Maybe you’ve secured an appointment at one of the notoriously busy Italian Consulates in the United States or already purchased that dream home in Italy.
Wherever you might be in this journey towards retirement in Italy, we’ve been there before with our clients. We know how Italy works – both on the ground (hi, from Florence!) and abroad. More importantly, as cross-border financial advisors, we fully understand how your U.S. retirement plans translate into la dolce vita – or not.
So, whether you are a US-Italian citizen and heading back to your ancestral homeland, or just getting started on your next chapter in life, there are some important tax and financial considerations for retirement in Italy.
In this article, we’ll explore some of the most important broad-stroke topics for U.S. nationals planning for retirement in Italy – with an emphasis on planning.
Italy as a Growing Destination for U.S. Retirees
Italy has always been a top destination for U.S. nationals to visit. It is not a country that needs to be marketed or sold. If you’ve been here, you know that experiences in this country crystallize into beautiful memories, and like a fine wine, they mature through time.
Many of our clients are U.S. citizens seeking retirement in Italy. In some cases, they've visited Italy multiple times, but we're often in the position of gently reminding them that moving to Italy initiates an entirely new framework of considerations.
Of course, there are the qualitative aspects of your move, such as choosing the best place to live in Italy according to your particular desires and vision for retirement.
Indeed, Italy provides a diverse palette of options for U.S. retirees – from alpine lakes in the North, to picturesque countryside villages in the middle, and emerald pockets of seaside escapes in the South. It’s also a convenient launching pad for travel to the rest of Europe.
In sum, the Romans knew what they were doing.
Nowadays, it also seems that Italian authorities know what they are doing to attract foreign pensioners. Let’s have a look at what this means for you.
How Italy Taxes Your U.S. Retirement Income
All responsible cross-border tax planning must be conducted through the lens of the U.S.-Italian Double Taxation Treaty (DTT).
This agreement governs how U.S. nationals are taxed on their income once they become an Italian tax resident. It is also key to planning for your anticipated retirement in Italy, since once you become an Italian tax resident, there are major fiscal obligations.
Italy’s Progressive Income Tax Regime
Similar to the United States, Italy operates through a progressive tax regime framework – Imposta sul reddito delle persone fisiche IPREF). With IPREF, your income is effectively taxed at certain tax brackets, filling up each tax rate like a bucket before moving onto the next.
However, unlike the United States, income tax rates in Italy ascend at a dizzying clip, climbing rapidly up to 43% for individuals generating over 50,000 EUR in income.
For retirees, you might be thinking: “Well, I’m clearly not working anymore, so why would this apply to me?” Let’s have a look at why this matters.
U.S. Social Security
In comparison to Italy, the United States has one of the most generous social security systems in the world.
Collecting Social Security, for many, can be a retiree’s source for a sustainable financial plan and how they intend to cover living expenses during retirement. It is a steady, reliable benefit. It is also taxable in Italy, at Italian income tax rates.
For many of our clients, Social Security income is considered the base of their taxable income.
Once you turn on your social security benefits, all your other income (e.g., distributions from traditional IRAs, rental income, etc.) will be stacked on top of this.
This is important to put into perspective, since average Social Security benefits can range anywhere from $2,500 - $4,000+ per month for many of our clients, and this places you in the 28%-38% effective tax rates for Italy.
How Traditional IRAs are Taxed in Italy
As mentioned earlier, all fiscally responsible financial plans for retiring in Italy are governed by the U.S.-Italian double taxation treaty.
In particular, it is critical to understand how your traditional IRA will be treated once you become an Italian tax resident, as this tends to be a major source of your retirement income.
If you are like many of our clients, you’ve pretty much done what you were supposed to do with your retirement planning. You’ve made deliberate decisions to contribute to a 401(k) and have gradually watched your wealth accumulate through your career. You’ve worked hard for this, and deservedly look forward to the moment where you can rely on this passive income in retirement.
That said, prior planning should be considered as necessary as your diligent contributions to your retirement
Unfortunately, for those seriously pursuing retirement in Italy, you might not have anticipated facing such high income tax rates that threaten to cut your retirement income nearly in half. This is completely understood, as when compared to the United States, your tax treatment on traditional IRAs is much less aggressive.
However, as it stands today, unless you are in one of the special tax regimes for pensioners in Italy (i.e., 7% flat tax), your pension income from a traditional IRA will be taxed at income tax rates.
Therefore, the timing of when you plan to draw down and take distributions from your traditional IRA is critical. This inherently requires planning, and, as we’ll cover in the upcoming sections, the cross-border dimension of this planning is very different than what you might expect.
But before we get into some of those financial planning considerations, let’s take a quick look at two other main sources of retirement income and how they are taxed in Italy.
Related reading: High-Net-Worth Tax Planning Strategies for Americans in Europe
How Roth IRAs and Taxable Brokerage Accounts are Taxed in Italy
In comparison to Traditional IRAs, Roth IRAs are treated differently in Italy by virtue of the double-taxation agreement.
Specifically, gains realized from a Roth IRA are taxable in Italy at the capital gains rate, which at the time of this writing is a flat 26%. Italy also recognizes some of the Roth IRA benefits, as the principal withdrawn is not taxable.
Similarly, taxable brokerage accounts are taxed in Italy at capital gains rates (i.e., a flat 26% on realized gains). That said, there are some very specific and important exceptions.
Known as “non-harmonized funds,” Italian authorities view some U.S. pooled investment vehicles as complex, and instead of taxing these investment vehicles at capital gains rates, they are taxed at income tax rates when traded in a taxable brokerage account.
The two most ubiquitous examples of this for U.S. nationals are mutual funds and ETFs.
Additionally, you cannot offset gains against losses with non-harmonized funds.
Critical Planning Considerations and Key Takeaways for U.S. nationals Retiring in Italy
Retiring in Italy has many moving parts. The cross-border aspect of financial planning, governed by the US-Italy double taxation treaty, requires you to consider how your existing assets and retirement income will be treated in Italy.
As you can distill from the discussion above, Italy operates with a very different tax framework for U.S. nationals. Overall, IPREF presents a much higher income-tax regime when compared to the United States, which can really impact the success of a plan, especially for early retirees, or at least make you reassess what is possible.
Financial Planning is About Setting Expectations
You want a plan that you can rely on, and simply speaking, not have to worry. Otherwise, what is the point?
Planning to retire in Italy as an American requires you to truly assess the present.
From a macro lens, it requires understanding how your retirement income will be treated and ensuring that it can not only meet your lifestyle goals, but exceed them and provide a cushion for the preservation of your wealth.
Such holistic planning demands that you think hard about healthcare and ensures that towards the end of your life, your financial plan will provide for you, whether in Italy or anywhere else in the world.
From a more granular financial planning lens, retirement in Italy will require you to assess where and how your assets are held. As we’ve mentioned above, your investment and retirement accounts are treated differently according to the U.S.-Italian double taxation treaty. It also requires you to have a grasp of the type of investments you are holding – including mutual funds and ETFs – and where those are being held for purposes of Italian taxes.
As we’ve emphasized throughout this, timing is key for planning
In addition to the traditional aspects of financial planning for retirement, such as planning when should you turn on Social Security or start taking distributions from your IRA, you are forced to put this into an Italian income tax context. Turning all these sources of income on too early can result in a high effective tax rate, lowering the accumulation of wealth through time. Restructuring certain investment accounts and asset types to ensure they are optimal from an Italian tax lens, however, can really have an outsized impact on a plan.
And we get it, Italy is calling. Perhaps it has been beckoning for a while now. If indeed it is your dream to retire in Italy, we want you to make it a reality. So this is the reality, and planning for it is well worth the effort.
Read next: How to Move Abroad Permanently: Building Your Relocation Team
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Disclaimer
This material is purely intended to be general and educational in nature, and should not be construed as specifically-tailored investment, financial planning, tax, legal, or other professional advice. Information and data contained herein is as-of the date of publication, and may be subject to change in the future without notice. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained herein should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. All investment, tax, and financial planning strategies involve risk that you should be prepared to bear. You are highly encouraged to consult with professionals of your choosing before taking any action based on this material.
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