IRA Rollovers For US Expats
Our guide highlights what US expats need to know when it comes to retirement accounts, rollovers, account maintenance and tax implications, so you can move forward with confidence, knowing your retirement savings are protected.
Relocating abroad as a US expat can be an exciting new beginning, but with such a big life change comes a host of financial and tax considerations. Retirement planning should be a priority for every American living overseas, particularly when it comes to navigating US retirement accounts, such as an Individual Retirement Account (IRA) or 401(k).
- What Happens to Your Retirement Account When You Move Abroad?
- When Should US Expats Consider a Rollover?
- Key Considerations for Expats: Account Custody, Location & Access
- Contributing To IRAs While Abroad
- Traditional vs Roth IRAs for US Expats
- Withdrawal, Taxation & Reporting Challenges
- US Expat Retirement Planning: Your Next Steps
By the end of this guide, you will gain a clear understanding of:
- How your US retirement accounts may change once you move abroad
- When you should consider a rollover
- How to ensure you can still continue to contribute to your accounts as an expat
- How to navigate the tax treatment in your new home country
- Proactive steps you can take to secure your retirement savings
What Happens to Your Retirement Account When You Move Abroad?
Even though you may be physically outside the United States, any retirement account you hold that’s governed by US rules, like a traditional IRA, a Roth IRA or a leftover 401(k), remains subject to US regulations.
Unfortunately, many US citizens or US connected people may struggle to maintain their retirement accounts when they move abroad. This is due to many US financial institutions applying restrictions to retirement accounts held by non-residents, and in some cases, even frozen accounts or forced transfers.
As most US retirement accounts are designed for US residents, many custodians of US retirement plans may classify non-resident clients as “offshore” and may attempt to restrict activity or insist on account closure. In fact, some providers have been known to give non-resident account-holders just 60 days to transfer their IRA or face closure.
For this reason, US expats living abroad should take a proactive approach when managing their US retirement accounts, rather than assuming they’ll simply continue as before.
When Should US Expats Consider a Rollover?
If you have a 401(k) from a former employer or you are still working but have moved abroad, you may consider rolling over your 401(k) into an IRA. A rollover allows you to transfer the assets from the 401(k) into an IRA and continue to benefit from the tax-advantaged status of the assets, while often gaining greater investment flexibility, potentially lower fees, and fewer constraints of typical employer-sponsored plans.
A401(k) rollover can offer many practical benefits to US expats, such as consolidating your retirement savings into place, simplifying management, and perhaps reducing the risk of dealing with a US provider which may refuse services to non-resident clients.
While a rollover may be a step in the right direction, it is essential to follow the correct process- a direct rollover (custodian to custodian) is usually the cleanest. Indirect rollovers (involving drawing down the funds and then re-depositing) can trigger withholding and tax issues. Seeking expert advice is crucial to ensure you avoid any tax pitfalls.
Key Considerations for Expats: Account Custody, Location & Access
One of the first issues expats face is not having the same accessibility to their US retirement accounts once their address is outside the United States. As noted, many US custodians either freeze accounts or require transfer once they detect a foreign address.
Another consideration is that the regulations in your new home country may restrict you from holding certain US-based accounts, or they may treat your US retirement account differently for tax or investment-regulation purposes. Being aware of the regulatory environment of your new home country before you move is essential, as this may affect your retirement planning significantly.
Contributing To IRAs While Abroad
Continuing to contribute to an IRA or Roth IRA while overseas is not always straightforward. Even if you maintain an account, eligibility to contribute depends on your US-taxable earned income. If you exclude all your foreign income via the Foreign Earned Income Exclusion (FEIE), you may have no eligible “compensation” to count toward an IRA contribution.
In other words, if your foreign-earned income is fully excluded from US tax under FEIE (or similar exclusions), you may not be eligible to contribute to a traditional or Roth IRA.
It's important for US expats living abroad to assess whether they may want to contribute and, if so, whether they should claim the foreign tax credit (FTC) instead of excluding income. This is a big decision, as it will affect both contribution eligibility and tax treatment of the funds.
Traditional vs Roth IRAs for US Expats
For many expats, the choice between a traditional IRA and a Roth IRA (or converting from one to the other) becomes more complex. In the United States, the distinction is clear: traditional IRAs offer tax-deductible contributions (depending on circumstances) and tax-deferred growth, while Roth IRAs involve after-tax contributions but tax-free future withdrawals.
However, once you move abroad, the IRA situation becomes more complex: how your host country treats the account (especially the tax status), and whether you will remain in a higher or lower tax bracket relative to US tax rates at retirement may not be certain. Some countries do not recognise the “tax-free in retirement” benefit of Roth IRAs, and may tax distributions.
A Roth IRA may make sense if you expect your overall tax rate (from any US and foreign income combined) to increase before or during retirement. However, you must weigh the additional complexity of cross-border taxation and local treatment of foreign retirement assets. For example, if you are resident in the UK with a US retirement account, both US and UK tax law must be considered.
Withdrawal, Taxation & Reporting Challenges
For US expats, no matter where you live in the world, US tax rules will follow you and still apply to your retirement accounts. Withdrawals from a traditional IRA or 401(k) are taxable in the US as ordinary income. Roth withdrawals, when qualified (if the account is held for at least five years and you are at least age 59.5), are tax-free for US purposes.
Additionally, your new country of residence may impose its own tax treatment on withdrawals from your US retirement account. Even with tax treaties in place, multiple jurisdictions claiming taxing rights on your retirement income can become difficult to navigate, and without proper planning, you could face a double tax trap or pay more tax than needed.
Staying on top of your reporting obligations is essential, and even if your retirement account is US-based, if you hold significant foreign assets you may need to file forms such as FBAR (FinCEN Form 114) or FATCA (Form 8938) if you also hold any foreign accounts.
US Expat Retirement Planning: Your Next Steps
For US expats who want to take control of their retirement planning, a good place to start is reviewing your current US retirement accounts. Evaluate the type of account (traditional or Roth), where they are held, their fees and accessibility from abroad, and whether your current provider supports non US residents. From here, you may consider a rollover to a provider that specialises in servicing US expats, if you feel that would better serve your circumstances.
The next step would be to consider your eligibility for contribution: check your US taxable income, whether you are excluding foreign earned income, and whether continuing contributions makes sense. Then analyse your host country’s tax treatment of your US retirement accounts, especially for distributions and any wealth or exit taxes.
Top Tip
Although it may be tempting to act solely based on US rules, remember that the laws of your host country may override or alter how your US based retirement savings are treated. By working with an advisor specialised in both US and foreign tax laws, you can ensure you stay compliant, navigate tax laws across multiple jurisdictions, and avoid costly mistakes.
At The Wealth Genesis, we provide US expats around the world with expert preparation and support throughout their journey abroad and through retirement. To learn more, book a free discovery call with one of our advisers today.
