Retiring abroad: the U.S. tax checklist

You spent 40 years working in the U.S. and saving in 401(k)s, IRAs, and Social Security. Now you want to retire to Portugal, Mexico, Thailand, or Panama. The U.S. tax obligations follow you across the border. Most of them are manageable; a few are non-obvious.

This article is the practical checklist for the U.S.-tax side of retiring abroad — assuming you're a U.S. citizen with U.S. retirement assets, moving to a country you didn't grow up in.

The first principle

You remain a U.S. taxpayer on your worldwide income for as long as you hold U.S. citizenship. Moving abroad doesn't change that. Your Social Security, 401(k) distributions, IRA distributions, and U.S. pensions all remain U.S.-taxable as if you'd stayed in the States.

What changes:

• Foreign country tax may apply on the same income, depending on the country and the treaty.
• State tax may or may not follow you — depends on the state. See state residency when abroad.
• Foreign reporting (FBAR, FATCA, possibly PFIC) applies the moment you have foreign accounts crossing the thresholds.

Social Security from abroad

Receiving payments

U.S. Social Security retirement benefits can be paid to you abroad in most countries. The Social Security Administration maintains a list of countries where payments are restricted (mostly U.S.-sanctioned countries — Cuba, Iran, North Korea, parts of Vietnam, etc.). For most popular retirement destinations, payments flow normally.

SSA can deposit to a U.S. bank or directly to a foreign bank in many countries (more than 30 have direct-deposit arrangements). U.S.-bank deposit is simpler and usually free; international transfers may have currency-conversion fees.

U.S. tax on Social Security

Up to 85% of your Social Security benefits are taxable on your U.S. return, depending on your "provisional income" (basically AGI + tax-exempt interest + half of Social Security). For most retirees with meaningful additional income, this is 85%.

This is true whether you live in Topeka or Tokyo. The U.S. taxes 85% of your benefits regardless of where you receive them.

Foreign country tax on Social Security

This is where the treaty matters. A typical pattern:

• No treaty / weak treaty: the foreign country may tax your Social Security as ordinary income, fully on its own terms. You then claim Foreign Tax Credit on the U.S. return for the foreign tax. Net result: foreign tax + U.S. tax on whichever is higher.
• Modern income-tax treaty with a Social-Security provision (Germany, UK, Canada, France, others): typically, Social Security is taxable only in the country of residence (or only in the source country, depending on the treaty article). Read the treaty carefully — the language varies.

Specific countries:

• Canada: U.S. Social Security taxed only in Canada, with a 15% exclusion under U.S.-Canada treaty Article XVIII.
• Germany: U.S. Social Security taxed only in Germany (treaty Article 19).
• UK: U.S. Social Security taxed only in the UK (treaty Article 17).
• Mexico: limited treaty coverage; Social Security taxed by both Mexico and the U.S. with FTC offset.
• Portugal: U.S. Social Security generally taxed only in the U.S. (treaty Article 20).
• Thailand: limited treaty; both countries can tax.

The country-specific page on this site (coming soon) will go deeper for popular retirement destinations.

401(k) and IRA distributions abroad

The U.S. side

Distributions from traditional 401(k) and IRA accounts are ordinary income for U.S. tax purposes. Roth distributions, if qualified, are tax-free.

Early withdrawal penalties (10% before age 59½) apply abroad the same way.

Required Minimum Distributions (RMDs) kick in at age 73 (or 75 if born after 1959). Failing to take an RMD results in a 25% excise tax on the missed amount (reduced from 50% as of 2023). RMDs apply whether you live in the U.S. or abroad.

The foreign side

Foreign countries vary widely in how they treat U.S. retirement account distributions:

• Some recognize the U.S. tax deferral and tax distributions like ordinary income with U.S. FTC offset (most treaty countries).
• Some treat the entire account as taxable on a current basis — annually marking up the unrealized gains. This is rare for treaty countries but happens in non-treaty jurisdictions.
• Some recognize the Roth as tax-free, others don't. Canada, UK, France generally recognize Roth status under treaty; many Asian and Latin American countries do not.

Before retiring abroad, verify how your destination country treats:

• Traditional IRA distributions
• 401(k) distributions
• Roth IRA distributions (often the most country-specific)
• Pension distributions

If the country taxes Roth distributions, the Roth's U.S. tax advantage is partially lost. Conversion strategies before moving may make sense — see below.

Pre-move tax planning

The 1–3 years before you move are when most of the meaningful tax planning happens.

Realize gains in low-tax windows

If you have large unrealized gains in a U.S. taxable brokerage account:

• Realize them while you're still in a U.S.-tax-only window, paying only U.S. long-term capital gains rates (0%, 15%, 20%).
• After moving, the same gains may be taxed by both the U.S. and your new country, with FTC offsetting only part of the duplication.

Watch out for state tax on the realization year — California or New York are happy to tax pre-move realization gains.

Roth conversions before moving

If your destination country doesn't recognize the Roth, convert before you move. A traditional-to-Roth conversion is U.S.-taxable in the year of conversion. Doing it during a low-income transition year (year you retire and have no salary) keeps the conversion in the lower U.S. brackets.

If your destination does recognize the Roth (Canada, UK, France), the conversion timing is less urgent.

Severance and bonus timing

If you have a final-year bonus or severance from your U.S. employer:

• Receiving it in the year you're still a U.S. resident keeps it cleanly under U.S. taxation.
• Receiving it after you've established foreign tax residency can pull it into the foreign country's tax system, with treaty allocation rules determining which side gets to tax.

If you have flexibility on timing, ask your employer for the December payment rather than January.

State residency severance

The single biggest pre-move task for residents of California, New York, New Mexico, Virginia, or South Carolina: formally sever state residency before you go.

A retiree leaving these states is a prime audit target for the state tax authority — substantial income, no work moving them, looks like a tax-motivated departure. The audit can come 3–5 years after you've left.

See state residency when abroad. Establishing domicile in a no-tax state (Florida, Texas, South Dakota, Nevada) for 6–12 months before moving abroad is a common play for retirees with significant pension or Social Security income.

Once you're abroad — annual rhythm

Filing requirements

• Form 1040 with worldwide income annually, due June 15 under the automatic expat extension. See expat tax deadlines.
• FBAR if foreign account aggregate exceeds $10K at any point. See what is FBAR.
• Form 8938 if foreign assets exceed FATCA thresholds. See what is FATCA.
• Form 8621 for any foreign mutual funds you accidentally bought (don't — see the PFIC trap).

Healthcare

Medicare does not cover you abroad in most situations. Two paths:

1. Pay Medicare premiums anyway to maintain coverage for visits home or eventual repatriation. You'll continue paying Part B (~$185/mo at standard income) for coverage you can't use abroad — but if you stop and re-enroll later, you face late-enrollment penalties that compound for life.
2. Foreign country coverage. Many retirement destinations have national health systems that cover residents (Portugal, Spain, France, Italy, Mexico's IMSS or INSABI, Thailand's various private/public options). Some require formal residency status; some are available with private supplements.

Most retirees abroad maintain Medicare Part A (free if you have 40 work credits) and drop Part B, with a private international policy for foreign coverage. Repatriation planning often involves re-enrolling in Part B in the right window.

Estate planning

U.S. citizens are subject to U.S. estate tax on worldwide assets at death — current exemption ~$13.99M (subject to legislative changes after 2025). If you have substantial assets:

• Cross-border estate planning is its own discipline. The interaction of U.S. estate tax, your destination country's inheritance laws, and any applicable treaties is non-DIY.
• Foreign wills and U.S. wills may both be needed — a U.S. will for U.S. assets, a foreign will for foreign-situated assets.
• Forced heirship laws in many civil-law countries (Spain, France, much of Latin America) override your wishes for asset disposition. Plan around them.

Common retire-abroad mistakes

• Assuming Medicare follows you. It mostly doesn't.
• Buying foreign mutual funds with the U.S. retirement proceeds. PFIC trap — devastating tax.
• Not severing state residency before leaving California or New York. Audit comes for you.
• Selling the U.S. house after the move and triggering both U.S. cap-gains tax and possible foreign cap-gains tax. See selling your U.S. house while abroad.
• Forgetting RMDs on traditional IRAs/401(k)s — 25% penalty on the missed amount.
• Failing to confirm Social Security taxation in the destination country. Some retirees lose 30%+ of their benefit to foreign tax they didn't anticipate.
• Roth conversions after the move when the destination country doesn't recognize the Roth — the conversion is taxable both places.
• Not setting up healthcare bridge coverage during the transition months.

The 90-day pre-move checklist

If you're moving abroad in the next 90 days:

1. Identify your destination country's tax treatment of Social Security, IRAs, 401(k)s, Roth IRAs, and capital gains. Look at the U.S. treaty (irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z).
2. Sever state residency if leaving CA / NY / NM / VA / SC.
3. Realize capital gains at favorable U.S. rates while still domiciled in the U.S.
4. Run Roth conversion analysis if destination doesn't recognize Roth.
5. Decide Medicare path — keep B or drop it.
6. Set up U.S. bank that accepts foreign addresses (Schwab, Charles Schwab International, Fidelity) for Social Security direct deposit and U.S. brokerage access.
7. Move belongings under the tax-free moving allowance if your foreign destination has one (Mexico does; some others).
8. Notify your U.S. brokerages of your new foreign address. Many brokers restrict trading from foreign addresses for certain securities (PRIIPs in EU; various rules elsewhere).
9. Engage a credentialed cross-border tax professional for the move year — the year of the move is the most complex and the most expensive to get wrong.

Next steps

• Foreign Tax Credit (Form 1116)
• State residency when abroad
• Selling your U.S. house while abroad
• Foreign pension reporting
• Roth IRA while abroad