Retirement Abroad and US Expat Taxes: What You Need to Know

Are you approaching retirement age and wondering where you can retire to make your retirement nest egg last longer? Retiring abroad may be the answer. But first, it’s important to look at the tax implications because you’ll still be liable to file U.S. taxes from abroad, and not all retirement country destinations are equal!

Here’s what you need to know.

Taxes on Worldwide Income

Leaving the United States does not exempt U.S. citizens from their U.S. tax obligations. While some retirees may not owe any U.S. income tax while living abroad, they must still file a return annually with the IRS. This would be the case even if all of their assets were moved to a foreign country. The bottom line is that you may still be taxed on income regardless of where it is earned.

Unlike most countries, the United States taxes individuals based on citizenship and not residency. As such, every U.S. citizen (and resident alien) must file a tax return reporting worldwide income (including income from foreign trusts and foreign bank and securities accounts) in any given taxable year that exceeds threshold limits for filing.

The filing requirement applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, that substantially reduce or eliminate U.S. tax liability.

Note: These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

Tax Filing and Reporting Considerations

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

In addition, taxpayers who are retired may have to file tax forms in the foreign country in which they reside. You may, however, be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.

Nonresident aliens who receive income from U.S. sources must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is April 15 or June 15, depending on sources of income.

How Is Retirement Income Taxed for Expats?

The U.S. applies the same tax rules to retirees abroad as it does to those stateside, but there are additional considerations for expats. Here’s a breakdown of common types of retirement income and how they’re taxed.

1. Income from Social Security or Pensions

If Social Security is your only income, your benefits may not be taxable, and you may not need to file a federal tax return, provided your total income is below $25,000 if single or $32,000 if married filing jointly.

Each year, you should receive Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits. Likewise, if you receive pension or annuity income, you should receive Form 1099-R for each distribution plan.

However, if you receive income from other sources, either from the U.S. or from your country of retirement, you may have to pay U.S. taxes on a portion of your benefits. Depending on your provisional income (adjusted gross income plus tax-exempt interest plus 50% of your total Social Security benefits), up to 85% of your benefits may be taxable if your income exceeds the thresholds above.

Taxes for taxpayers overseas are very complex, so consult a local tax professional or one who specializes in expat tax services, such as Tax Samaritan.

2. Distributions from Traditional IRAs and 401(k)s

The IRS taxes withdrawals from a Traditional IRA or 401(k) as ordinary income. Required Minimum Distributions (RMDs) must also still begin at the required age.

Unfortunately, these distributions do not qualify for the Foreign Earned Income Exclusion (FEIE) because they are considered unearned income.

The country where you retire may also tax these distributions as ordinary income, depending on its local tax laws and any applicable U.S. tax treaty. In some cases, a treaty may assign primary taxing rights to one country or provide relief to help avoid or reduce double taxation, such as through a Foreign Tax Credit on your U.S. return.

3. Distributions from Roth IRAs

Qualified Roth IRA distributions are tax-free as long as the account has been open for five years and you’re over 59½. Unlike distributions from traditional accounts, these withdrawals do not increase your taxable income.

Roth IRAs are also not subject to RMD during the original owner’s lifetime, which gives you the flexibility to withdraw as needed.

Although Roth distributions are tax-free in the United States, your country of residence may tax them. Some countries do not recognize the Roth IRA’s tax-free treatment and may treat withdrawals as ordinary income or investment gains.

4. Income from Foreign Pensions

The U.S. generally taxes distributions from foreign pensions and annuities as ordinary income, similar to U.S.-based pensions. You may not receive a Form 1099-R or equivalent reporting document from the foreign payer, but you must still report the income on your U.S. tax return regardless.

The taxable amount is typically the gross distribution minus your cost (investment in the contract), and these payments do not qualify for the Foreign Earned Income Exclusion.

5. Dividends, Interest, and Capital Gains

Investment income, such as dividends, interest, or proceeds from the sale of stocks or other securities, remains taxable in the United States.

Dividends and interest are generally taxed as ordinary income, although qualified dividends may be taxed at favorable rates. Capital gains from the sale of investments must also be reported. Long-term capital gains, generally from assets held more than one year, are taxed at lower rates than short-term gains.

How To Avoid Double Taxation When Retiring Abroad

If you’re living in a country that taxes worldwide income, you could face double taxation. Thankfully, the U.S. has provisions to help mitigate this.

1. Using Tax Treaties to Prevent Double Taxation

The United States has income tax treaties with a number of foreign countries, but these treaties generally don’t exempt residents from their obligation to file a tax return.

Under these treaties, residents (generally not U.S. citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income.

Treaty provisions are generally reciprocal; that is, they apply to both treaty countries. Therefore, a U.S. citizen or resident who receives income from a treaty country and who is subject to taxes imposed by foreign countries may be entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries.

2. Claiming the Foreign Tax Credit (FTC)

The Foreign Tax Credit is one of the most effective ways to avoid double taxation. It allows you to reduce your U.S. tax liability by claiming a dollar-for-dollar credit for foreign taxes paid. This is especially useful if your host country taxes retirement distributions, investment income, or other sources of income.

For instance, if your host country taxes your U.S.-based pension at a rate of 15%, you can claim that amount as a credit against your U.S. tax liability. In many cases, the FTC fully offsets U.S. taxes, provided you don’t owe more to the IRS than you’ve paid in foreign taxes.

To claim the Foreign Tax Credit, you’ll need to file Form 1116 with your U.S. tax return. Be sure to keep detailed records of taxes paid abroad, as you’ll need this documentation to support your claim.

3. Applying the Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion allows U.S. citizens and Green Card holders living abroad to exclude a certain amount of foreign-earned income from U.S. taxation. For 2026, the maximum exclusion amount is $132,900, up from $130,000 in 2025.

The exclusion applies only to earned income such as wages, salaries, or self-employment income. It does not cover passive income sources, such as pensions, Social Security benefits, or investment income. This makes it less relevant for retirees who are no longer working.

To qualify for the FEIE, you must meet one of the following tests:

• Physical Presence Test: You must be physically present in a foreign country for at least 330 full days within a 12-month period.
• Bona Fide Residence Test: You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.

While the FEIE can’t be used to reduce taxes on retirement income, it remains a valuable tool for retirees who continue to work part-time or freelance while living abroad. To claim the exclusion, you’ll need to file Form 2555 with your tax return.

Eligibility and Rules for Social Security Abroad

If you’ve worked in the U.S. and earned at least 40 credits (equivalent to 10 years of work), you’re eligible to receive Social Security benefits, even if you retire abroad. However, the process of receiving benefits as an expat comes with important rules and limitations that vary by country.

Countries Where Social Security Benefits Are Prohibited

The U.S. restricts Social Security payments to residents of certain countries due to political or legal restrictions. If you reside in one of these countries, the SSA will withhold your payments until you move to an eligible country. Here’s the current list of restricted countries:

• Cuba
• North Korea
• Azerbaijan
• Belarus
• Kazakhstan
• Kyrgyzstan
• Moldova
• Tajikistan
• Turkmenistan
• Uzbekistan

If you plan to relocate to one of these countries or already reside in one, note that your payments will be suspended. However, once you move to an eligible country, withheld benefits can typically be reinstated.

Countries That Do Not Tax Social Security Benefits

If your priority is to maximize your retirement income, consider moving to a country that does not tax U.S. Social Security payments. Some countries explicitly exempt these benefits from local taxes due to their tax laws or bilateral tax agreements. 

Here is the current list of countries that do not tax U.S. Social Security benefits:

• Canada
• Egypt
• Germany
• Ireland
• Israel
• Italy
• Romania
• United Kingdom

Social Security Spousal and Survivor Benefits

Foreign spouses may qualify for spousal or survivor benefits if certain requirements are met. These generally include living in a country with a totalization agreement with the United States and meeting U.S. Social Security eligibility requirements, which may include a minimum marriage duration or residency criteria.

Countries with totalization agreements, such as France, Australia, and Japan, can make it easier for foreign spouses to receive benefits. If no agreement exists, additional restrictions may apply.

Reporting Requirements for Retired Expats

If you’re a retired expat, staying compliant with U.S. tax laws requires more than just filing your annual tax return. Additional reporting requirements apply to foreign bank accounts and financial assets.

1. FBAR: Foreign Bank Account Report (FinCEN Form 114)

You must file the FBAR (FinCEN Form 114) if the combined value of all your foreign financial accounts exceeds $10,000 at any time during the year. This includes not only personal accounts, but also joint accounts, business accounts, and any accounts over which you have signature authority, even if you do not own the funds.

You must file the FBAR separately from your federal tax return and submit it electronically through the BSA E-Filing System. The deadline is April 15, with an automatic extension to October 15 if you need additional time.

If you fail to file, you may face penalties of up to $14,489 per violation for non-willful violations. For willful violations, the penalty can be the greater of $145,490 per violation or 50 percent of the account balance

2. FATCA: Foreign Account Tax Compliance Act (Form 8938)

Expats who own foreign financial assets that exceed the following thresholds must file Form 8938 under FATCA.

• $200,000 at the end of the year, or $300,000 at any time during the year for single filers living abroad.
• $400,000 at the end of the year, or $600,000 at any time during the year for married couples filing jointly and living abroad.

If you live in the United States, lower thresholds apply, so confirm your filing requirement based on your residency status. You must report foreign financial assets such as bank accounts, brokerage accounts, foreign pensions, and certain foreign insurance contracts.

If you fail to file Form 8938, you may face a minimum penalty of $10,000. Continued non-compliance can result in additional penalties of up to $50,000 and, in extreme cases, criminal charges.

State Taxes After Moving Abroad

Even after you move abroad, some U.S. states may still treat you as a resident for tax purposes and continue to impose state income taxes. States such as California, New York, and Virginia are particularly aggressive in taxing former residents. They use broad definitions of residency and may claim you still have sufficient ties to remain subject to state tax.

States can continue taxing expats if strong connections remain. This typically happens when you:

• Maintain property in the state, such as a home you own but don’t rent out.
• Keep a valid driver’s license or state ID issued by that state.
• Remain registered to vote in the state.
• Maintain financial ties, such as active bank accounts or investments associated with the state.
• Use a state address as your official mailing address, such as on legal documents or tax forms.

If you fail to take action to sever these ties, the state may assert that you remain a resident and make you liable for state income taxes even if you haven’t set foot in the state for years.

Steps to End State Tax Residency Before Moving Abroad

To ensure a clean break and avoid state taxes while living abroad, it’s important to take deliberate steps to cut ties. Here are the most effective actions to take:

1. Cancel Your Voter Registration: If you’re still registered to vote in the state, it can be used as evidence of your intent to return, even if you don’t vote. Cancel your voter registration and, if necessary, register in a no-tax state before moving abroad.

2. Surrender Your Driver’s License: Holding a driver’s license from a state suggests ongoing residency. Turn it in and obtain a license from a no-tax state, or let it lapse if you no longer need one.

3. Sell or Rent Out Property: Owning a home in the state may indicate residency unless it’s rented out to someone else. If you can’t sell the property, make sure to lease it to show that it’s not available for your personal use.

4. Close State-Based Bank Accounts: If you maintain bank accounts tied to the state, it can imply a financial connection. Switch to national or online banks to avoid this issue.

5. Establish Residency in a No-Tax State Before Moving Abroad: States like Florida, Texas, Nevada, and Washington have no income taxes. Moving to one of these states and establishing residency there before relocating overseas can help you avoid lingering tax obligations.

6. Update Your Mailing Address: If you’re using a state address (such as a family member’s home) as your official mailing address, it could signal that you still have ties to that state. Use a P.O. box or an international address instead.

Practical Tax Tips for Retirees Abroad

Here are additional tips to help you make the most of your retirement while staying tax-compliant:

1. Research the Tax Rules of Your Host Country

Before making the big move, learn how your host country taxes retirement income like pensions, Social Security, or investments. Some countries tax worldwide income, while others may only tax income earned locally. If your chosen destination has a tax treaty with the U.S., this could help you avoid double taxation or reduce your tax burden. For example, countries like Portugal, Canada, and Germany have tax treaties with the U.S. that provide favorable terms for retirees.

2. Consider the Cost of Health Insurance and Tax Benefits

Healthcare is a key part of retirement planning, especially when living abroad. Many retirees opt for private international health insurance. In some cases, the premiums and medical expenses you pay out-of-pocket may be tax-deductible in the U.S., helping to reduce your taxable income. Be sure to keep detailed records of all your healthcare expenses.

3. Plan Your Estate and Gift Taxes Carefully

U.S. estate and gift tax laws apply to all citizens, no matter where they live. At the same time, many countries have their own inheritance or estate taxes. If you plan to pass on assets, take the time to understand both U.S. and local tax laws to avoid unexpected liabilities. Updating your will and estate plans to align with your host country’s legal requirements can save your family from complications later. Additionally, watch out for gift taxes when transferring money to family members—it’s easy to trigger taxes unintentionally without proper planning.

4. Make Use of Foreign Housing Deductions (If You Qualify)

If you’re still working part-time during retirement, you might qualify for the Foreign Housing Exclusion or Deduction, which can lower your U.S. tax liability. Eligible expenses include rent, utilities, and maintenance. While this benefit doesn’t apply to non-working retirees, it’s worth keeping in mind if you plan to take on freelance or consulting work abroad.

5. Be Mindful of Currency Exchange and Tax Implications

Currency fluctuations can impact how much you actually receive from U.S.-based accounts or retirement distributions. If the exchange rate changes significantly, it could also create taxable gains. Keep detailed records of all currency exchanges and withdrawals to avoid surprises at tax time. If possible, consider using a multi-currency account to simplify your finances.

6. Understand Local Residency Rules to Avoid Extra Taxes

Some countries automatically classify you as a tax resident if you spend a certain amount of time there, even if you didn’t intend to establish permanent residency. Tax residency could mean paying taxes on your worldwide income, not just local earnings. Research the residency rules in your host country, and if necessary, limit the time you spend there to avoid being classified as a resident.

7. Regularly Review FATCA and FBAR Requirements

Your financial situation may change over time, and so will your reporting obligations. For example, if you open additional foreign bank accounts or investments, you may need to file updated FBAR and FATCA forms. Regularly reviewing these requirements ensures you stay compliant with U.S. regulations and avoid penalties.

8. Open a Local Bank Account Wisely

A foreign bank account can make everyday transactions much easier, but it also comes with reporting obligations under U.S. tax laws. Choose a bank in a country that has favorable reporting terms under FATCA. Be sure to monitor account balances to ensure they stay below thresholds that could complicate your reporting.

9. Consider Retirement-Friendly Countries

Some countries actively attract retirees with tax-friendly policies. For instance, Portugal offers the Non-Habitual Residence (NHR) program, which provides significant tax breaks on foreign income for up to 10 years. Similarly, countries like Panama and Costa Rica exempt foreign income from local taxes entirely. Exploring these programs could make your retirement dollars go further.

10. Plan for Long-Term Tax Implications of Dual Citizenship

If you hold dual citizenship or plan to acquire it, be aware that it may add complexity to your tax obligations. Some countries require you to file taxes even if you don’t live there full-time. For example, U.S. citizens remain subject to U.S. taxes regardless of where they live. Consider how dual citizenship might affect your tax liability and reporting requirements.

Expatriation and Its Tax Implications

If you decide to relinquish your U.S. citizenship or cease to be a lawful permanent resident of the U.S. during any tax year, you must file a dual-status alien return and attach Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with the IRS by the due date of the tax return (including extensions).

Note: Giving up your U.S. citizenship doesn’t mean giving up your right to receive social security, pensions, annuities or other retirement income. However, the U.S. Internal Revenue Code (IRC) requires the Social Security Administration (SSA) to withhold nonresident alien tax from certain Social Security monthly benefits.

If you are a nonresident alien receiving Social Security retirement benefits, SSA will withhold a 30% flat tax on 85% of those benefits unless you qualify for a tax treaty benefit. This results in a 25.5% withholding of your monthly benefit amount.

Before You Retire, Consult Tax Samaritan

Planning your retirement abroad is exciting, but understanding your tax obligations is key to making it stress-free. With the right guidance, you can protect your income and focus on what truly matters: enjoying this new chapter.

Get started by downloading our free U.S. Tax Guide to Retiring Abroad. It’s your first step toward a confident and worry-free retirement.