Last Updated
Affiliate links
Some links in this article are partner links (reklamelinks). If you click through and sign up or make a purchase, ExpatFinance.dk may earn a commission at no extra cost to you. This helps cover the cost of running the site and keeping the content free. It doesn’t affect which products we cover or what we say about them.
Quick Summary
Denmark taxes the growth inside a Roth IRA or Roth 401(k) every year as capital income, and leaves the withdrawals alone. A Traditional IRA or 401(k) usually works the other way round: no tax on growth, and withdrawals handled at the end.
Relevant to US citizens and green card holders who are fully tax liable in Denmark and hold US retirement accounts.
One question decides which treatment applies: did every contribution get a US tax deduction or exclusion going in? If not, the account is taxed every year, whether or not you sell anything, at up to 42 %, paid out of pocket in kroner.
- Quick Summary
- The one question Danish tax law asks
- Traditional and Roth, side by side
- Why the Roth is the expensive one
- Traditional withdrawals escape Danish tax, then raise it anyway
- Rollovers and inherited accounts get traced back
- This is the point to stop and get advice
- Three things that catch people out
- Bottom Line
The IRS calls your Roth tax-free. Denmark taxes it every year, on growth you can’t touch, while the Traditional account sitting next to it grows untaxed.
That’s the reverse of what most Americans assume when they move here. Danish law asks one question about each US retirement account, and the answer sorts it into one of two treatments that behave in opposite ways.
The one question Danish tax law asks
Your US retirement account isn’t an approved Danish pension scheme, so Danish law (the Pension Taxation Act, or pensionsbeskatningsloven) puts it under one of two rules.
The default rule taxes the account’s growth every year and leaves withdrawals untaxed. Call it the annual-tax treatment.
The exception works the other way: no Danish tax on growth, and withdrawals count as income. Call it the withdrawal-tax treatment.
An account only gets the withdrawal-tax treatment if two things are both true, according to Skattestyrelsen’s guidance on foreign schemes taxed on withdrawal (in Danish). You set it up before you became fully tax liable in Denmark, or while you were treaty-resident somewhere else. And every contribution got a full deduction or exclusion from US taxable income at the time.
The second condition is stricter than it sounds. If even part of one contribution missed the full US tax benefit, the whole account falls back to the annual-tax treatment, and you have to prove both conditions, not just assert them.
Traditional and Roth, side by side
Skatterådet, Denmark’s tax ruling body, has confirmed the split in practice. In a 2021 binding ruling on a Traditional and Roth 401(k) held with one employer (in Danish), it treated the two as separate accounts: the Traditional money taxed on withdrawal, the Roth money taxed every year.
| Traditional IRA / 401(k) | Roth IRA / 401(k) | |
|---|---|---|
| Danish treatment | Taxed on withdrawal | Taxed every year |
| Contributions after you move | No Danish deduction | No Danish deduction |
| Annual growth | Not taxed in Denmark | Taxed as kapitalindkomst |
| Withdrawals | Counted as Danish income, then relieved under the treaty | Not taxed in Denmark |
| Who taxes withdrawals under the treaty | The US | The US |
In Short
Denmark counts a Traditional account once, at the end, and the US-Denmark tax treaty then takes that tax off again.
Denmark taxes a Roth every year along the way, and the treaty doesn’t touch that tax.
Why the Roth is the expensive one
A Roth taxed every year is taxed on a mark-to-market basis. Take its value at year-end plus anything you withdrew, subtract its value at the start of the year plus anything you paid in, and the difference is your taxable gain, according to Skattestyrelsen’s guidance on how the annual return is calculated (in Danish). Selling nothing doesn’t change that.
The gain counts as kapitalindkomst (capital income). It’s taxed at your municipal rate plus the bottom-bracket rate of 12.01%.
Net capital income above DKK 55,000 (double for a married couple) also counts toward the higher brackets, if your salary and capital income together reach them. The combined rate on capital income is capped at 42 %, according to the tax ministry’s table of personal tax rates and thresholds (in Danish).
A Danish ratepension pays a flat 15.30% on the same kind of yearly growth. So a Roth here is typically taxed at around two and a half times the rate of the Danish pension it most resembles, on money you can’t spend without US consequences.
Two details make it worse than the headline rate.
Losses don’t help right away. A losing year in the Roth can only be set against future gains in the same account, never against your other income and never against earlier gains, as the National Tax Tribunal confirmed in a 2023 decision on carrying back a negative return (in Danish).
Currency moves count too. If you use the simplified calculation method, the dollar-to-krone move during the year lands in your taxable gain, per Skattestyrelsen’s guidance on converting the return to kroner (in Danish). A Roth that sits flat in dollars can still owe Danish tax if the krone weakened.
Case Study
A Roth IRA holding index funds is worth USD 200,000 on 1 January and USD 224,000 on 31 December. Nothing goes in, nothing comes out. In dollars, that’s a 12% year.
At roughly 6.90 kroner to the dollar at the start of the year and 7.05 at the end, the Danish calculation runs from about DKK 1,380,000 to about DKK 1,579,200, a taxable gain of around DKK 199,200. About DKK 30,000 of that is the krone weakening, not the funds growing.
For someone whose salary already reaches the middle bracket, the bill lands around DKK 74,000 to DKK 84,000, or roughly USD 10,500 to USD 12,000 on a USD 24,000 gain. The Roth produced no cash, so it’s paid from savings or salary.
Illustrative only. Exchange rates, your other capital income, your salary and your municipality all move the answer.
Traditional withdrawals escape Danish tax, then raise it anyway
When you take money out of a Traditional IRA or 401(k), Denmark counts it as taxable income. Then the US-Denmark tax treaty steps in.
Under the treaty, pensions from qualifying US plans, including 401(k)s, IRAs, Roth IRAs and 403(b)s, are taxed only by the US, as Skatterådet set out in a 2025 ruling on a Traditional IRA and a US occupational pension (in Danish). Denmark gives up its claim using a method called exemption with progression.
Exemption with progression doesn’t make the withdrawal invisible. Denmark calculates tax on your salary plus the withdrawal, then knocks off the share of that tax belonging to the withdrawal, so your salary ends up taxed at the average rate of the combined total.
Say your Danish personal income is DKK 600,000, below the middle-bracket threshold of DKK 641,200, and you withdraw the equivalent of DKK 200,000 in the same year. Denmark works out the tax on DKK 800,000, which crosses both the middle bracket and the top-bracket threshold of DKK 777,900, then removes a quarter of it.
The withdrawal itself isn’t taxed in Denmark, but the salary now carries some of the higher-bracket tax it wouldn’t have carried alone. Spreading withdrawals across years usually softens this.
Rollovers and inherited accounts get traced back
Skatterådet has been consistent on one point: what counts is where the money originally came from, not which account holds it today.
| Situation | What Skatterådet held | Ruling |
|---|---|---|
| One employer plan holding both Traditional and Roth money | Two separate schemes, one under each treatment | The 2021 ruling above |
| 401(k) and 403(b) balances rolled into IRAs | The tax status of the original contributions carries through, because the money never left the pension system | 2022 ruling on rollovers and inherited accounts (in Danish) |
| Accounts inherited from a deceased spouse | Treated as if the survivor had set up and funded them personally | The 2022 ruling, and a 2023 ruling on inherited US schemes (in Danish) |
Rolling a Roth into a new account doesn’t move it to the withdrawal-tax treatment. Inheriting a Traditional IRA doesn’t let you skip the classification work either: you inherit the deceased spouse’s contribution history, and you have to document it.
This is the point to stop and get advice
Everything above is how the rules work. Applying them to your own accounts is where it goes wrong.
For a Traditional account to escape the annual tax, you have to show Skattestyrelsen, year by year, that every dollar in got the US tax break. Two common situations break that: a non-deductible IRA contribution made because your income was too high, and an employer plan that mixed pre-tax and after-tax money in one account. Get the classification wrong in your favor, and it tends to surface years later, with interest added.
This is a two-country problem, so it needs a cross-border tax specialist who has handled these classifications before, rather than a US-only preparer or a Danish revisor (accountant) who’s never seen a 1099-R. On the US side, the IRS’s Directory of Federal Tax Return Preparers lists CPAs and enrolled agents by credential; on the Danish side, Erhvervsstyrelsen’s public register shows whether an accountant is a registered or state-authorized auditor. Neither register tells you who knows US pensions, so ask directly how many of these classifications they’ve filed.
Tip
Before your first meeting, pull the annual statements for every US retirement account you hold, going back to the first contribution, plus each year’s Form 5498 and any Form 8606 you filed for non-deductible IRA contributions. Mark which contributions were pre-tax and which weren’t. That file is most of your case, and building it now is far easier than reconstructing it a decade from now.
Three things that catch people out
Withdrawing to pay the Danish tax. Danish law lets you take money out of the same account, tax-free in Denmark, specifically to cover the Danish tax on its growth, with until the end of the following year to do it. The US doesn’t follow: before age 59½ you can still owe US tax and an early-withdrawal penalty on the same withdrawal. If you do bring dollars over for a kroner tax bill, the conversion cost comes straight off what’s left, and a service like Wise (partnerlink/reklamelink) usually costs less than a bank wire.
Opening an account after you arrive. The withdrawal-tax treatment only covers accounts that existed before you became fully tax liable in Denmark. A Traditional IRA opened after the move can’t qualify, however the IRS treats it, so its growth is taxed every year.
Assuming you can keep contributing. IRA contributions need US taxable compensation behind them. Exclude your Danish salary under the Foreign Earned Income Exclusion, capped at USD 132,900 for 2026 according to the IRS page on figuring the exclusion, and you may have nothing left to base a contribution on. Either way, Denmark gives no deduction for it.
Accounts opened before 18 February 1992 sit under an older, separate set of rules, described in Skattestyrelsen’s guidance on pre-1992 schemes (in Danish). They’re rare enough that the answer for anyone holding one is a specialist, not a paragraph.
Bottom Line
For an American moving to Denmark, the Traditional account is usually the well-behaved one and the Roth is the expensive one: Denmark taxes its growth every year, at roughly two and a half times the rate on a Danish pension, and bills you in kroner for money you can’t touch. Which treatment each account gets comes down to documentation, so the cheapest time to settle it with a cross-border specialist is before your first Danish tax year closes.
Official sources
- Foreign pension schemes taxed on withdrawal: Skattestyrelsen, Den juridiske vejledning (in Danish)
- Annual taxation of the return on foreign pension schemes: Skattestyrelsen, Den juridiske vejledning (in Danish)
- Declaration L (form 49.020): Skattestyrelsen (in English)
- Personal tax rates and thresholds: Skatte- og Vækstministeriet (in Danish)
- Skatterådet ruling on a Traditional and Roth 401(k) held together: Skattestyrelsen (in Danish)
- Figuring the Foreign Earned Income Exclusion: IRS (in English)
Disclaimer
This article is for informational purposes only and does not constitute financial, tax, or investment advice. Figures reflect publicly available data at time of writing. Always consult a qualified professional regarding your specific situation. See our full disclaimer.
