A US Expat’s Guide to Retiring Abroad
Our guide to retiring abroad will highlight the key considerations for US expats, ensuring that you feel more prepared for your adventure overseas
For many Americans, the dream of retirement means stepping into a slower rhythm of life, perhaps somewhere with warm winters, beautiful vistas or a rich new culture to get immersed into. For US citizens who plan to retire abroad, it is essential to be aware of the financial complexities that come with expat life. Planning for retirement overseas isn’t just about choosing the most ideal destination; it’s about understanding how your income, pensions, and investments interact across borders.
In this guide, you will gain a clear understanding of the following:
- What you are required to report to the IRS as a US expat
- How your social security is taxed abroad
- How IRA withdrawals are taxed for US expats
- How the Foreign Earned Income Exclusion may affect your IRA contributions
- How foreign tax credits may help you as an expat abroad
- How PFICs may affect your ability to invest abroad
US Expat Reporting Obligations
One of the most important things to be aware of as a US citizen living abroad, is that the IRS follows you everywhere. Whether you end up retiring in Seville or Singapore, your worldwide income remains reportable to the United States. This includes pensions, Social Security, IRAs, and even foreign investment income. Your priority should be understanding what is taxable, what is not, and how you can avoid being taxed twice.
This is where planning early makes all the difference. Many expats assume that moving abroad somehow severs their ties to the IRS, but unfortunately, that is not the case. Understanding the interplay between US tax law and the rules of your new home country, especially when a tax treaty exists, can help you structure your retirement income in a tax-efficient way long before you stop working.
Your Social Security Benefits Abroad
If you’ve worked in the United States for at least ten years, you will most likely have earned the 40 credits needed to qualify for Social Security benefits. The good news is that you can still receive those payments while living abroad.
In most cases, up to 85% of your Social Security income may be taxable by the United States, depending on your total income and filing status. However, your new country of residence may also claim taxing rights, unless a tax treaty prevents this. Some treaties specify that only the “paying country” (the US) may tax your benefits; others assign that right to your country of residence. Understanding which rule applies to your personal situation can make a major difference in your retirement budget.
If you’ve lived or worked in a country that has a ‘totalization agreement’ with the United States, such as the UK, Canada, or Germany, this agreement may even allow your years working abroad to count toward your US Social Security credits. This can be a lifeline for expats who left the US just shy of qualifying on their own.
Expat IRAs and 401(k)s
Navigating Individual Retirement Accounts (IRAs) and 401(k)s as an expat can be difficult and confusing. Both are excellent tools for building retirement savings in the US, but what happens when you move abroad and become a tax resident of another country?
A traditional IRA or 401(k) is funded with pre-tax dollars, which means distributions are fully taxable when you withdraw them. This rule does not change when you live overseas. What does change is how your host country treats those withdrawals. Some countries, like the UK, recognize the tax-deferred nature of US retirement accounts under treaty provisions. Others may view them simply as income, taxing them in full.
For this reason, many Americans moving to the UK or other countries consider rolling a 401(k) into an IRA. This can simplify investment management and offer more flexibility while still keeping assets in a US-based, tax-advantaged structure.
Top Tip
Seek advice from a professional before any rollover to avoid early withdrawal penalties or unexpected tax events.
A Roth IRA works differently: because it’s funded with after-tax income, qualified distributions are tax-free in the United States. However, some countries will not recognise this tax-free treatment. A country might see a Roth withdrawal as taxable income, even if the IRS does not. For this reason, some advisors recommend waiting to draw from your Roth IRA until you’re back on US soil, or at least until you’ve reviewed how your country of residence treats such income.
Can I Still Contribute to My IRA As A US Expat?
Even if you’re living overseas, you may still be able to contribute to an IRA. The catch lies in whether you have “taxable compensation.” This can include foreign wages or self-employment income, but if you’re using the Foreign Earned Income Exclusion (FEIE) to shield your income from US taxes, this income no longer counts as “taxable.” In other words, by claiming the FEIE, you might inadvertently make yourself ineligible to contribute to an IRA for that year.
For this reason, higher earners may consider using the foreign tax credit rather than the FEIE. This credit can offset your US tax liability while still preserving your eligibility for IRA contributions. It’s also worth remembering that the annual IRA limit will be applied to the total across all IRAs, traditional and Roth combined, so contributions must be planned carefully.
Foreign Pensions and Double Taxation
Many expats who spend decades working abroad may also accumulate a foreign pension. These can range from government-backed state pensions to employer-sponsored retirement schemes. The challenge is that the US generally treats foreign pensions as taxable income, even if you have already paid tax on contributions or earnings in your home country.
This is where understanding your ‘cost basis’ becomes crucial. If your employer contributions and your own pension contributions were already taxed in the US when made, those amounts form the non-taxable portion of your pension when you eventually withdraw it. Unfortunately, tracking this basis can be complex, and many expats end up overpaying because they fail to document it correctly.
Some countries have tax treaties which allow partial relief on foreign pension taxation, but these are the exception, not the rule. In practice, it often comes down to claiming foreign tax credits to offset double taxation. Even if your foreign pension is fully taxable in the US, you can use unused foreign tax credits from your working years (carried forward for up to ten years) to reduce your liability in retirement. This is one of the most valuable yet overlooked planning strategies for expats approaching retirement.
Investing Abroad and PFICs
Beyond pensions and Social Security, retirees abroad often draw income from dividends, capital gains, and interest. These too remain reportable to the IRS, regardless of where the account is held. If you’re living in a country that taxes investment income at a lower rate than the US, you may end up owing tax to the IRS; if your host country taxes it more heavily, you may be able to use foreign tax credits to balance things out.
However, there is another layer of complexity: many popular investment vehicles abroad, such as non-US mutual funds or ETFs, are classified as “Passive Foreign Investment Companies” (PFICs) by the IRS. These come with punitive tax treatment unless handled with precision. For this reason, many advisors recommend keeping your investment accounts in the US, even if you reside abroad, or working with an investment platform that adheres to PFIC compliance.
Filing and Reporting as a US Expat
Even if your income is modest, you may still be required to file a US tax return. For most filing statuses, your requirement kicks in when your income exceeds the standard deduction, but for those married to non-US citizens and filing ‘married filing separately,’ the threshold is just $5. This means that nearly every US expat with any income at all must file a federal tax return annually.
As a US expat abroad, it is crucial to stay compliant with financial reporting rules, including the FBAR (Foreign Bank Account Report) if your combined foreign financial accounts exceed $10,000 at any time during the year. While this isn’t technically a tax form, it’s a serious compliance requirement, and failing to file can result in large penalties.
Why Professional Advice Matters
Ultimately, retiring abroad as a US expat is as much about coordination as it is about compliance. A qualified cross-border financial advisor can help you integrate US tax law, foreign pension rules, and your personal goals into a single streamlined plan to help you reach your financial goals.
Advisors who specialise in US expat finances understand how to align your portfolio with your residency status, minimise tax burdens, and time your withdrawals strategically.
Retirement abroad is one of life’s great adventures. At The Wealth Genesis, we help US expats navigate life overseas with ease, setting them up for a prosperous financial future.
To learn how we can help you, book a free discovery call with one of our advisors today.
