Knowledge Center Tax Advice for Specific Needs

401(k) for U.S. Expats: Contributions, Taxes & Withdrawals

The IRS announced that the 401(k) contribution limit has increased to $24,500 for the 2026 tax year, up from $23,500 in 2025. For Americans living abroad, this raise brings welcome news alongside important questions: Can you still contribute to your 401(k) while overseas? What happens to your existing account when you move abroad? How are withdrawals taxed?

Your 401(k) doesn’t disappear when you move overseas. In most cases, you can maintain your account from anywhere in the world, continue receiving distributions when eligible, and keep your retirement savings intact. However, making new contributions becomes significantly more complicated and depends on your employer situation and income sources.

This guide covers everything you need to know about 401(k)s as an American expat, including updated 2026 contribution limits, tax implications, withdrawal rules, and how the Foreign Earned Income Exclusion and Foreign Tax Credit affect your retirement planning.

What Are the 2026 401(k) Contribution Limits?

For the 2026 tax year, the annual contribution limit for 401(k) plans has increased to $24,500. If you’re 50 or older, the catch-up contribution limit increased to $8,000, allowing you to contribute up to $32,500 total.

There’s also a special provision for those approaching retirement: If you’re between ages 60 and 63, you can contribute an additional $11,250 instead of the standard $8,000 catch-up amount.

Take Note

While these limits apply to all Americans regardless of where you live, most expats cannot take advantage of them due to employment and income source restrictions explained below.

Not sure whether to leave your 401(k) in the US, roll it over, or change your strategy?

Talk to an expat tax specialist before you make any irreversible moves.

Can I Contribute to a 401(k) While Living Abroad?

Generally, no. To contribute to a 401(k) plan, you must be actively employed by a company that offers a 401(k) plan and sponsors your participation. For expats, this creates several barriers.

When You CAN Contribute

You work for a U.S. company on a temporary foreign assignment (typically with an expected return within a few years)
Your employer maintains your enrollment in the U.S. 401(k) plan during your overseas assignment
Your employer continues making payroll deductions and employer matching contributions
You receive U.S.-source income reported on Form W-2

When You CANNOT Contribute

You work for a foreign company (even a foreign subsidiary of your former U.S. employer)
You’re self-employed or working as an independent contractor abroad
You’re a digital nomad earning income from multiple sources
You’ve permanently relocated without employer sponsorship
Your income is entirely foreign-source

Why foreign companies rarely offer 401(k) plans: While any foreign company could theoretically offer a U.S.-based 401(k) plan, they must follow all the strict eligibility rules and regulations that govern these retirement accounts. The administrative complexity and cost typically make this impractical unless the foreign company employs many U.S. citizens.

Corporate expats on assignment: If your U.S. employer sent you abroad temporarily, you’re in the best position to continue 401(k) contributions. Verify with your HR department that your plan remains active during your foreign assignment.

What Happens to My 401(k) When I Move Abroad?

Good news: Your existing 401(k) doesn’t disappear when you move overseas. You have several options.

Option 1: Leave It with Your Former Employer

Most 401(k) plans allow you to maintain your account after leaving the company, especially if your balance exceeds $5,000. Your investments continue growing tax-deferred, and you retain all the same protections and distribution options.

Considerations:

Some U.S. retirement plan administrators are reluctant to work with overseas account holders
You face currency risk as your account grows in USD while you’ll eventually spend in a foreign currency
Limited ability to make changes or receive timely customer service due to time zones
Your foreign country may still tax the account growth depending on local tax laws

Option 2: Roll Over into an IRA

Many expats choose to roll their 401(k) into an Individual Retirement Account (IRA) for greater control and flexibility. This can be done as a direct rollover with no tax consequences if executed properly.

Benefits of rolling over:

More investment options than typical 401(k) plans
Better control over your retirement savings
Potentially lower fees
Easier account management from abroad
Can consolidate multiple 401(k)s from different employers

Important

Make sure your IRA custodian (Fidelity, Vanguard, Schwab, etc.) will continue serving you as an expat. Some financial institutions have become reluctant to maintain accounts for Americans living abroad.

Option 3: Take a Distribution

You can withdraw your 401(k) balance, but this is usually the worst option due to tax consequences:

Withdrawals are taxed as ordinary income in the year you receive them
If you’re under 59½, you’ll typically pay an additional 10% early withdrawal penalty
You lose decades of potential tax-deferred growth

Can I Move My 401(k) to a Foreign Retirement Account?

No, not without significant tax consequences.

With rare exceptions for specific corporate pension plans, there’s no such thing as a “foreign 401(k) equivalent.” Withdrawing funds from your U.S. 401(k) and transferring them to a foreign retirement account creates an immediate taxable event in the United States.

Why this doesn’t work:

U.S. tax law allows tax-free rollovers between U.S. retirement accounts only
Transferring to a foreign account is treated as a distribution
You’ll owe U.S. income tax on the full amount
If you’re under 59½, you’ll also face the 10% early withdrawal penalty

Better approach: Keep your U.S. 401(k) or IRA intact while contributing to foreign retirement accounts separately. This allows you to maintain tax-deferred growth in the U.S. while also building retirement savings in your country of residence.

How Are 401(k) Withdrawals Taxed for Expats?

401(k) withdrawals (called distributions) are taxed as ordinary income by the U.S., regardless of where you live when you take them.

Standard distribution rules apply:

Qualified distributions at age 59½ or later: Taxed as ordinary income, no penalty
Early distributions before age 59½: Taxed as ordinary income PLUS 10% penalty (with some exceptions)
Required Minimum Distributions (RMDs) starting at age 73: You must take annual withdrawals or face a 25% penalty on the amount not withdrawn

Foreign Country Taxation

Many countries also tax 401(k) distributions as income. This creates potential double taxation, which you can address through:

Foreign Tax Credits: Claim a dollar-for-dollar credit for foreign taxes paid on the same income
U.S. tax treaties: Some treaties provide specific provisions for retirement income, potentially reducing or eliminating taxation in one country

Example: Robert retires in Portugal and takes a $50,000 distribution from his 401(k) at age 65. Portugal taxes the distribution at 28% ($14,000). His U.S. tax would be $12,000 before credits. Using the Foreign Tax Credit, he can offset his entire U.S. tax liability and potentially carry forward the excess $2,000 credit.

Time zone challenges: The December 31 deadline for RMDs doesn’t adjust for international time zones. If you’re in Asia or Australia, complete withdrawals by mid-December to avoid missing the deadline and facing the 25% penalty.

How Do FEIE and Foreign Tax Credit Affect My 401(k)?

Your approach to minimizing current taxes can affect your retirement savings strategy.

Foreign Earned Income Exclusion Impact

The Foreign Earned Income Exclusion allows you to exclude up to $130,000 of foreign earned income for the 2025 tax year (filed in 2026) using Form 2555. However, excluded income cannot support IRA contributions.

This means if you exclude all your income using the FEIE, you technically have no taxable compensation to support IRA contributions. This creates a dilemma for expats who might want to roll their 401(k) into an IRA and continue contributing.

Strategic consideration: Some expats intentionally leave enough income taxable (above the FEIE exclusion) to maintain IRA contribution eligibility. If you earn significantly above the $130,000 exclusion amount, you can use the FEIE on the first $130,000 and have the remainder serve as eligible compensation for IRA purposes.

Foreign Tax Credit Advantage

The Foreign Tax Credit doesn’t eliminate income from your tax return like the FEIE does. Instead, it provides a dollar-for-dollar credit for foreign taxes paid using Form 1116. This means:

Your income remains as taxable compensation for IRA contribution purposes
You can continue building retirement savings while living abroad
Especially valuable for expats in high-tax countries (Canada, UK, Germany, France, Australia)

Example: Maria lives in Germany and earns $140,000. She pays $49,000 in German income tax. Using the Foreign Tax Credit, she offsets her entire U.S. tax liability of $38,000 and carries forward $11,000 in excess credits. Importantly, because her income wasn’t excluded, she can roll her 401(k) into an IRA and make the full $7,500 IRA contribution for 2026 (or $8,600 if she’s over 50).

Special Situations for Expats with 401(k)s

Moving Back to the U.S.

If you’re returning to the United States, your 401(k) becomes much simpler to manage. You can:

Resume contributions if your new employer offers a 401(k)
Roll your old 401(k) into your new employer’s plan
Convert to a Roth IRA (paying taxes now for tax-free growth later)

Renouncing U.S. Citizenship

If you’re considering renouncing U.S. citizenship, your 401(k) treatment depends on whether you’re a “covered expatriate”:

Non-covered expatriates: Keep your 401(k) with no special tax consequences, though future distributions face 30% withholding
Covered expatriates: May need to elect immediate taxation or accept the 30% withholding on all future distributions

Self-Employed Expats

If you’re self-employed abroad, you cannot contribute to a traditional 401(k), but you might be able to contribute to:

Solo 401(k): Requires U.S.-source self-employment income
SEP IRA: Requires taxable earned income (not excluded under FEIE)
Traditional or Roth IRA: Requires taxable earned income up to contribution limits

The key challenge is ensuring you have eligible income that hasn’t been excluded under the FEIE.

Common Mistakes to Avoid

Taking early distributions without planning: The 10% early withdrawal penalty combined with income taxes can consume 40% or more of your distribution. Explore hardship exceptions or wait until 59½.
Forgetting about Required Minimum Distributions: Living abroad doesn’t exempt you from RMDs starting at age 73. Missing an RMD results in a 25% penalty on the amount not withdrawn.
Not verifying custodian will serve expats: Before rolling your 401(k) to an IRA, confirm the custodian will maintain your account while you live abroad. Some institutions have closed expat accounts without warning.
Overlooking foreign country taxation: Your country of residence may tax your 401(k) distributions even if the U.S. provides tax-deferred growth. Research local tax treatment and tax treaty provisions before taking large distributions.
Assuming you can contribute like before: Most expats cannot continue 401(k) contributions once they move abroad permanently. Plan accordingly and explore foreign retirement options.

Your 401(k) Doesn’t Have to Be Complicated

Managing a 401(k) while living abroad requires careful planning, but it’s entirely manageable with the right guidance. The key is knowing:

Whether you can continue contributing (usually only on temporary foreign assignments)
How withdrawals will be taxed in both the U.S. and your country of residence
Which tax strategy (FEIE vs. FTC) best supports your retirement goals
How to maintain your account with an expat-friendly custodian

Greenback is an American company founded in 2009 by U.S. expats for expats. We focused exclusively on expat taxes and always have. Many of our CPAs and Enrolled Agents are expats themselves, and because they live in 14 time zones, they experience firsthand the challenges of living abroad. They have the knowledge and patience to help you manage the complicated U.S. tax system and your local rules.

Whether you’re managing a 401(k), IRA, or exploring other retirement planning options as an expat, we have the knowledge to help you get it right.

No matter how late, messy, or complex your return may be, we can help. You’ll have peace of mind, knowing that your taxes were done right.

If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.

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This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and subject to change. For advice on your specific situation, please consult a qualified tax professional specializing in expat taxation.

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