Retiring Abroad: A Tax Guide for US Expats

Retiring abroad is no longer just a dream for a few; it’s becoming a reality for many Americans. According to a 2025 Harris Poll, nearly half (44%) of Americans have seriously considered retiring abroad, often drawn by the promise of lower living costs, better healthcare, and a higher quality of life.

In the midst of planning your golden years abroad, it’s important to remember that your US tax obligations follow you no matter where you live, and most types of retirement income remain taxable.

In this guide, we’ll walk you through everything you need to know about US taxes, including key topics like healthcare, Social Security, and the best places to retire.

Reporting Obligations For Americans Who Retire Abroad

Retiring abroad doesn’t exempt you from US tax obligations. The United States taxes you based on your citizenship, not where you live, so even if you retire abroad, you must still report your worldwide income once it reaches IRS filing thresholds.

For the 2024 tax year, the filing threshold is $16,550 for single filers age 65 or older, and $32,300 for married couples filing jointly where both spouses are 65 or older.

This includes common retirement income such as Social Security, pensions, retirement account withdrawals, investments, rental income, and even part-time work after retirement.

In short, if money is coming in, the IRS expects to know about it, even if you’ve chosen to spend your retirement years abroad.

Additional Reporting: FBAR and FATCA

It’s common for retirees abroad to keep money in foreign bank or investment accounts for everyday spending, savings, or to receive income like pensions, Social Security deposits, or dividends. If the combined balance of your foreign accounts exceeds $10,000 at any point in the year, you must file an FBAR (Foreign Bank Account Report).

FBAR (FinCEN Form 114): If the total value of your foreign bank accounts combined exceeds $10,000 at any point during the year, you must file an FBAR. You file this form separately from your tax return, and it may also include foreign pensions.

FATCA (IRS Form 8938): Expats must also report foreign assets on Form 8938 if their value exceeds $200,000 at year-end or $300,000 at any point during the year when living abroad. Higher thresholds apply, but retirees should verify whether their foreign pension balances trigger reporting requirements.

Avoiding Double Taxation in Retirement

Retiring abroad doesn’t mean paying tax twice on the same income. The US tax code and international agreements provide several ways to reduce or eliminate double taxation.

Foreign Earned Income Exclusion (FEIE)

Some retirees continue to earn income through part-time work, consulting, or freelancing. If you still have income coming in, the Foreign Earned Income Exclusion (Form 2555) lets you exclude up to $130,000 (2025) of earned income from US tax.

To qualify, you must meet either the Bona Fide Residence Test (living in a foreign country for a full tax year) or the Physical Presence Test (at least 330 days abroad in a 12-month period). While the FEIE doesn’t apply to passive retirement income, it can be a valuable tool for semi-retired expats with ongoing earnings.

Foreign Tax Credit (FTC)

If you pay income tax in the country where you retire, you can often offset your US tax bill by claiming the Foreign Tax Credit on IRS Form 1116. The FTC applies to both earned income and passive income, including pensions, annuities, dividends, interest, and rental income. For retirees in countries with higher tax rates than the US, the credit can sometimes wipe out US liability entirely.

An additional benefit of the Foreign Tax Credit is the carryover feature, which allows you to apply unused credits back 1 year and forward for up to 10 years.

Tax Treaties

The US has tax treaties with many countries that address how retirement income, such as state pensions and Social Security benefits, is taxed. These treaties help avoid double taxation by assigning taxing rights to one country or clarifying how the income should be treated. However, the Savings Clause in most treaties still allows the IRS to tax US citizens as if the treaty didn’t exist.

Even so, treaties are valuable for clarifying taxing rights and supporting the use of the FTC on income already taxed abroad. Treaty benefits are claimed using Form 8833.

How Retirement Income Is Taxed by the US

Retiring abroad doesn’t change the fact that the IRS taxes your retirement income much the same way it does for retirees in the US. What changes is the added layer of foreign reporting and local tax rules. Below is a breakdown of how different types of retirement income are treated for US tax purposes:

• Traditional 401(k)s and IRAs: Contributions reduce taxable income when made, but withdrawals are taxed as ordinary income in retirement.
• Roth IRAs: Contributions are made with after-tax dollars. Once the account has been open for at least 5 years and you’re over 59½, withdrawals are tax-free.
• Annuities: The IRS taxes part of your payments depending on whether you made contributions with pre- or post-tax dollars.
• Dividends: The IRS taxes ordinary dividends at your regular income rate, while it taxes qualified dividends that meet IRS rules at lower long-term capital gains rates (0%, 15%, or 20%).

Rolling Over a 401 (k) Abroad

US retirement accounts can’t be rolled into foreign plans without tax consequences. If you move money into a foreign pension plan, the IRS does not consider it a qualified rollover. Instead, the IRS treats it as a taxable distribution and requires you to report it as ordinary income. If you move the funds into a foreign mutual fund or pension, you may also trigger complex PFIC reporting.

Foreign Tax Treatment of US Retirement Accounts

While US tax rules for retirement income are the same whether you live in the US or abroad, the country you retire to may treat your accounts differently. Some countries don’t automatically recognize the tax-deferred or tax-free status of US retirement accounts. This means contributions, and in some cases investment growth, may be taxable locally, even if they are tax-advantaged in the US.

The exact treatment varies by country and may depend on your residency or domicile status. It’s often helpful to consult a local tax advisor to understand how your country applies its own rules.

MyExpatTaxes can help you determine whether a tax treaty exists between the US and your country of residence and what relief it may provide.

Social Security Benefits Abroad

Many Americans wonder what happens to their Social Security if they retire abroad. The good news: you can generally still collect benefits while living abroad, and millions of retirees already do. According to the Social Security Administration, benefits are paid to recipients in over 150 countries.

Whether your benefits are taxable depends on your provisional income (AGI + half of your Social Security + tax-exempt interest):

• Benefits tax-free
  • Single filer: below $25,000
  • Joint filers: below $32,000
• Up to 50% taxable
  • Single filer: $25,000–$34,000
  • Joint filers: $32,000–$44,000
• Up to 85% taxable
  • Single filer: above $34,000
  • Joint filers: above $44,000

Social Security benefits can usually be deposited directly into a foreign bank account in most countries. Some countries may tax these benefits locally, but if your host country has a tax treaty with the US, it may reduce or even eliminate double taxation.

Don’t Overlook State Taxes When Retiring Abroad

Moving abroad doesn’t always mean you’re free from state taxes. Some states, often called “sticky states”, like California, New York, Connecticut, Massachusetts, Virginia, New Mexico, and South Carolina, make it harder to break residency ties.

If you keep property, a driver’s license, or other strong connections, these states may still treat you as a resident for tax purposes and require you to file a return. To avoid ongoing state tax obligations, it’s important to formally cut ties before you move abroad or establish residency in a tax-free state such as Florida, Texas, or Nevada.

Learn more in our State Tax Guides for Expats

Investing Abroad in Retirement

For retirees abroad, it’s important to be cautious with foreign investment products. The IRS classifies many foreign mutual funds, ETFs, and retirement savings vehicles as Passive Foreign Investment Companies (PFICs). You must report each PFIC annually on Form 8621, and the IRS often taxes the income at the highest ordinary rates, sometimes with added interest charges. This treatment can quickly erode or even wipe out potential gains, leaving retirees with little benefit.

Because of this, you’re generally better off keeping your retirement savings in US-domiciled mutual funds and ETFs, which remain under familiar US tax rules and don’t trigger PFIC reporting. Before you commit to a foreign pension plan, check how US and local tax laws treat it.

Buying Foreign Real Estate

Buying a home abroad is a common goal for retirees, but it comes with both US and foreign tax implications. The US fully taxes rental income from foreign property, just like income from US property, and your host country may tax it too.

When it comes time to sell, any gain is subject to US capital gains tax, even if that sale is exempt under local law. Some countries also levy a wealth or property tax based on the value of real estate you own. Understanding how both US and foreign rules apply can help you avoid unpleasant surprises.

Best Places to Retire Abroad

When deciding where you want to retire abroad it’s a good idea to factor in things like healthcare, cost of living, and material well being. Many Americans start by looking at familiar, English-speaking destinations for ease of transition and close proximity to the US.

The countries below stand out among expats for their affordability, healthcare, ease of transition and retiree-friendly lifestyle:

Country	Why It’s Popular with Retirees
Canada	Close to home, accessible healthcare, easy cultural transition
United Kingdom	Shared language, strong expat communities, quality healthcare
Australia	High living standards, familiar systems, outdoor-friendly lifestyle
France	World-class healthcare, lifestyle centered on food and culture
Italy	Slower pace of life, affordable regions, rich cultural experiences
Spain	Warm climate, affordable living, strong public healthcare
Germany	Reliable healthcare, efficient infrastructure, central EU location
New Zealand	English-speaking, safe, natural beauty, relaxed living
Mexico	Cost-effective, close to US, growing expat retiree hubs
Japan	Modern infrastructure, world-leading healthcare, safe for retirees

Check out our full library of Expat Country Guides for tailored advice.

Healthcare Abroad

Healthcare is one of the biggest considerations when retiring abroad. While systems vary by country, most retirees face three main options:

• Public healthcare: Many countries allow expats to access the national healthcare system once they become residents and begin contributing. Costs are often much lower than in the US, though access may depend on residency status and enrollment requirements.
• Private healthcare: Expats often turn to private clinics and hospitals, which typically offer shorter wait times and more amenities. Care usually costs less than in the US, but you pay bills out of pocket unless private insurance covers them.
• Supplemental insurance: Some retirees choose international or private insurance to bridge gaps, expand coverage, or ensure access to private facilities.

It’s important to plan for the transition. Until you’re eligible for local public healthcare, you’ll need private health insurance, and in many countries, proof of coverage is required to secure a residence permit. Prepare for this gap to avoid unexpected costs and to ensure continuous coverage as you settle abroad.

Estate Planning Abroad

Estate planning becomes more complex when you retire abroad. In many cases, it’s best to have wills in both the US and your country of residence, coordinated so they work together.

The US has estate tax treaties with a number of countries, though the provisions vary. If foreign estate taxes apply, the US may provide a credit to avoid double taxation. Because inheritance laws and tax rules differ widely, seek professional advice to ensure your wishes are respected and your heirs avoid complicated cross-border disputes.

Let MyExpatTaxes Help

Retiring abroad can be rewarding, but it requires careful planning. From US tax rules to healthcare and estate planning, preparing in advance helps ensure peace of mind. A Tax Professional at MyExpatTaxes can help you make the most of tax treaties, unlock every benefit available, and keep you fully compliant, so you can focus on enjoying retirement abroad.

With MyExpatTaxes, many expats discover they owe little or even no US tax. Sign up today and keep more of your money in retirement.