Knowledge Center Financial Accounts & Investing Abroad

IRAs for Retirees Living Abroad: Managing Distributions, Taxes, and Strategies

Living your retirement dream abroad shouldn’t mean giving up control of your IRA. According to the Social Security Administration, over 700,000 Americans receive Social Security benefits while living overseas, and many also maintain IRAs that provide critical retirement income. Whether you’re enjoying retirement in Portugal, Mexico, or Thailand, your IRA remains accessible, but managing it from abroad requires specific strategies to minimize taxes and avoid costly mistakes.

Why Do IRAs Matter When I Retire Abroad?

For American retirees living abroad, Individual Retirement Accounts often represent decades of disciplined savings. Unlike 401(k)s that typically stay with former employers, IRAs provide flexibility and control when you’re managing finances from halfway around the world.

Many retirees worry that moving abroad will complicate their access to IRAs. The reality? Your IRA custodian doesn’t care whether you’re in Florida or France. What matters is how you manage distributions, coordinate with foreign taxes, and plan for currency exchange.

According to IRS data from 2016-2021, 62% of expats owe $0 in U.S. taxes after applying available exclusions and credits. For retirees with both IRA income and foreign tax obligations, this percentage is often even higher due to the Foreign Tax Credit.

Make Sure Your IRA Distributions Are Taxed the Right Way Abroad.

Get clarity on U.S. and foreign taxes before you start taking withdrawals.

Traditional vs. Roth IRAs: Which Serves Me Better Abroad?

Your decision between maintaining a Traditional IRA and converting it to a Roth IRA during retirement abroad has a significant impact on your tax strategy.

Traditional IRA Tax Treatment for Expats

How it works: Contributions were tax-deductible when you were working. Distributions are taxed as ordinary income in the year you receive them.
Who benefits: Retirees in high-tax countries where the Foreign Tax Credit eliminates most or all U.S. tax liability.
Key advantage: Required Minimum Distributions (RMDs) at age 73 force distributions, but these can be offset by foreign taxes paid.
Important consideration: If you retire to a low-tax or no-tax country, you’ll pay full U.S. income tax on Traditional IRA distributions with no foreign tax credits to offset them.

Example – Traditional IRA in a High-Tax Country:

Patricia retired to France at age 65 with $800,000 in her Traditional IRA. At age 73, her first RMD is approximately $30,075. France taxes this as ordinary income at 20%, resulting in $6,015 in French taxes paid.

On her U.S. return:

$30,075 distribution is taxable income
Effective U.S. tax rate (after deductions): approximately $4,200
Foreign Tax Credit from French taxes: $6,015
Result: $0 U.S. tax owed, with potential credit carryforward

Roth IRA Tax Treatment for Expats

How it works: Contributions were made with after-tax dollars. Qualified distributions (made after age 59.5 and the account has been open for 5+ years) are completely tax-free.
Who benefits: Retirees in low-tax countries, retirees under age 73 who want distribution flexibility, and anyone wanting tax-free growth.
Key advantage: No RMDs during the owner’s lifetime. Withdraw what you need, when you need it, completely tax-free.
Important consideration: Foreign countries may not recognize the Roth IRA’s tax-free status. Research your country’s specific treatment.

Example – Roth IRA in a Low-Tax Country:

Marcus retired to Panama at age 62 with $600,000 in his Roth IRA. Panama does not impose income tax on foreign-source retirement income. He withdraws $40,000 annually for living expenses.

Tax result:

U.S. tax: $0 (qualified Roth distributions)
Panama tax: $0 (foreign-source income exempt)
Total tax: $0

How Will My Foreign Country Tax My IRA Distributions?

Most countries with income taxes will tax your IRA distributions as ordinary income from retirement, regardless of whether it’s a Traditional or Roth IRA. This is one of the most important realities for American retirees abroad.

Foreign Tax Treatment

Traditional IRA distributions: Nearly always taxed as ordinary income in your country of residence.
Roth IRA distributions: Often taxed despite being tax-free in the U.S. Many countries don’t recognize the Roth IRA’s special tax status because contributions weren’t deducted from income in their tax system.

Tax Treaty Benefits

The United States has tax treaties with over 60 countries that can affect how your IRA distributions are taxed:

What treaties can do:

Establish which country has primary taxing rights
Reduce withholding tax rates
Provide specific exemptions for certain retirement income
Coordinate taxation to prevent double taxation

What treaties typically don’t do:

Completely exempt IRA distributions from taxation
Override Required Minimum Distribution rules
Change the fundamental U.S. tax treatment of your IRA

Example – U.S.-UK Tax Treaty:

The U.S.-UK tax treaty allows the UK to tax pensions and annuities as if the recipient were a UK resident. However, the treaty also ensures you can claim a Foreign Tax Credit on your U.S. return for UK taxes paid, preventing double taxation.

How Do I Manage Traditional IRA Distributions While Living Abroad?

Distribution Timing Strategies

Consider the December 31 RMD deadline carefully: If you live in Asia, Australia, or other regions ahead of U.S. time zones, December 31 in New York might already be January 1 where you are. Complete RMDs by mid-December to avoid timezone complications.
Coordinate with foreign tax years: Many countries have different tax years, such as the UK (April-March) and Australia (July-June). Time your distributions to minimize foreign tax impact when possible.
Plan for currency exchange: Your RMD is calculated in U.S. dollars, but you’ll need local currency. Exchange rate fluctuations can significantly impact your actual purchasing power.

Example – Currency Considerations:

David lives in Europe and takes a $25,000 RMD. If the EUR/USD rate is 0.90, he receives €22,500. If the rate drops to 0.85 when he takes his subsequent RMD, the same $25,000 will only yield €21,250, resulting in a €1,250 loss in purchasing power, despite the same dollar amount.

Pro Tip

Consider taking RMDs during favorable exchange rate periods (while still meeting the December 31 deadline) to maximize your local currency value.

Avoid These Common RMD Mistakes

Mistake 1: Calculating RMD based on multiple IRAs but only withdrawing from one abroad

You must calculate RMD separately for each Traditional IRA, but you can take the total from one or more IRAs. However, ensure your custodian will process international transfers.

Mistake 2: Missing the first-year April 1 extension

Your first RMD can be delayed until April 1 of the year after you turn 73. However, you’ll then owe two RMDs that year, creating a potential tax spike.

Mistake 3: Forgetting to update your address with your IRA custodian

Some custodians restrict services for accounts with foreign addresses. Verify your custodian’s expat policy before moving.

How Can I Access My IRA Before Age 59.5 If I Retire Early Abroad?

Many Americans retire abroad well before the traditional retirement age. If you’re under 59.5 and need IRA income, you have several options to avoid the 10% early withdrawal penalty.

Substantially Equal Periodic Payments (SEPP) Under Rule 72(t)

SEPP allows penalty-free withdrawals before age 59.5, but it’s an all-or-nothing commitment.

How it works:

Calculate annual payments using one of three IRS-approved methods
Take the exact same amount every year
Continue for the greater of 5 years OR until age 59.5
Any modification triggers retroactive penalties on ALL previous distributions

Best for: Retirees who require a steady income before reaching age 59.5 and are committed to the schedule.
Not suitable for: Individuals requiring flexible withdrawal amounts or those with uncertain income needs.

Example – SEPP for Early Retirement Abroad:

Sarah retires to Costa Rica at age 55 with $500,000 in her Traditional IRA. Using the RMD method and IRS life expectancy tables, she calculates annual SEPP payments of approximately $18,500.

She must take exactly $18,500 every year until the age of 60 (a minimum of 5 years). She cannot:

Skip a year if she doesn’t need the money
Take more in an emergency
Stop payments early without triggering penalties

Tax treatment:

U.S.: Ordinary income, no 10% penalty
Costa Rica: Taxed as foreign pension income (approximately 15%)
Foreign Tax Credit reduces U.S. tax liability

Other Early Withdrawal Exceptions for Expats

First-time home purchase: Up to $10,000 lifetime limit, penalty-free. Works if you’re buying property in your foreign country of residence.
Higher education expenses: Qualified expenses for yourself, spouse, children, or grandchildren. Includes foreign universities if they’re eligible for U.S. student financial aid.
Medical expenses: Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income qualify for penalty-free withdrawal.
Health insurance premiums (if unemployed): Specific rules apply; consult a tax professional for guidance.
Disability: If you become totally and permanently disabled, all distributions are penalty-free.

These exceptions only waive the 10% penalty. You still owe ordinary income tax on Traditional IRA distributions.

What Are the Advantages of Roth IRAs for Retirees Abroad?

Roth IRAs offer distinct advantages for retirees living in certain foreign countries:

No Required Minimum Distributions

Unlike Traditional IRAs, Roth IRAs have no RMDs during your lifetime. This provides:

Distribution flexibility: Withdraw only what you need, preserving tax-free growth for remaining funds.
Estate planning benefits: Remaining funds pass to heirs with no RMDs required (though beneficiaries face different rules).
Tax management: In low-tax countries, you can minimize total lifetime taxes by preserving Roth funds and spending taxable accounts first.

Tax-Free Growth Continues Forever

Every dollar that remains in your Roth IRA continues growing completely tax-free. For long retirements (potentially 30+ years abroad), this compounds significantly.

Example – Roth IRA Longevity Advantage:

Jennifer, age 65, has $400,000 in her Roth IRA and $400,000 in her Traditional IRA. She lives in Portugal and needs $35,000 annually.

Strategy 1: Draw equally from both

Traditional IRA: $17,500 taxable, gradually depletes over 23 years
Roth IRA: $17,500 tax-free, gradually depletes over 23 years
Total taxes paid over 23 years: Approximately $45,000 (U.S. + Portugal)

Strategy 2: Draw from Traditional first, preserve Roth

Traditional IRA: $35,000 taxable, depletes in 11-12 years
Roth IRA: Untouched, grows to $600,000+ by age 76
Then: $35,000 annually tax-free from Roth
Total taxes paid: Approximately $55,000 (first 12 years only)
Benefit: $200,000+ extra for later retirement, tax-free

Foreign Country Roth IRA Treatment

Important caveat: Not all countries recognize Roth IRA tax-free status.

Countries that generally respect Roth IRAs:

Canada (with treaty election)
Netherlands
Germany (generally)

Countries that often tax Roth distributions:

United Kingdom
Australia
France (sometimes)

What this means: Research the specific treatment in your country. Even if taxed abroad, you can claim Foreign Tax Credits on your U.S. return, often resulting in zero U.S. tax.

Greenback specializes in helping retirees abroad coordinate U.S. and foreign tax obligations. Our CPAs and Enrolled Agents know how to maximize your Foreign Tax Credits and optimize your distribution strategy based on your specific country of residence. Whether you’re in a high-tax country like France or a low-tax country like Portugal, we’ll help you keep more of your retirement income.

Should I Convert My Traditional IRA to Roth During Retirement Abroad?

Converting Traditional IRA funds to a Roth IRA during retirement can be strategic, especially in your first years abroad.

Why Convert While Living Abroad?

Lower U.S. tax brackets: If you’re not working and have limited U.S. income, you may be in a lower tax bracket than during your working years.
Foreign Tax Credit strategy: If living in a low-tax country, you can convert amounts that fit within low U.S. tax brackets before you start RMDs.
Future tax-free distributions: Once converted and the 5-year rule is satisfied, all future Roth distributions are tax-free (to the U.S.).

Optimal Conversion Strategy

Example – Strategic Roth Conversion Abroad:

Tom and Linda retired to Mexico at age 63. They have $700,000 in Traditional IRAs and receive $40,000 in annual Social Security income. Mexico doesn’t tax foreign-source retirement income.

Their strategy:

Years 63-72: Convert $50,000 annually from Traditional to Roth
U.S. tax on conversions: Approximately $4,500 annually (after standard deduction)
Mexico tax: $0
Result: By age 72, they’ve converted $500,000 to a Roth IRA
At age 73: RMDs only apply to the remaining $200,000 Traditional IRA
Remaining Roth IRA: Grows tax-free, no RMDs, available for emergencies or legacy

Tax savings: Converting during retirement abroad (rather than during working years at 24-32% brackets) saves approximately $100,000 in taxes over 10 years.

Conversion Considerations

Don’t convert more than you can afford to pay tax on. You must pay U.S. income tax on the converted amount in the year of conversion.
Check your foreign country’s tax treatment. Some countries tax conversions as income; others don’t recognize them.
Follow the 5-year rule. Converted amounts must remain in the Roth for 5 years before you can withdraw them tax-free and penalty-free (even if you’re over 59.5).

Will My Former State Continue Taxing My IRA Distributions?

Don’t forget state taxes. Even though you live abroad, some U.S. states continue to tax former residents’ IRA distributions.

States That May Continue Taxing You

Most aggressive:

California: May claim you’re still a resident if you maintain significant connections
Virginia: Continues taxing former residents’ retirement income in certain situations
South Carolina: Has attempted to tax former residents’ retirement income

How to Establish Non-Residency

Before moving abroad:

File a final state return declaring non-residency
Cancel driver’s license and vehicle registration
Register to vote in your new country (or update to absentee status)
Close local bank accounts or change to non-resident status
Sell property or establish a clear rental/investment status
Update your will and estate documents

Document everything: Keep records of your departure date, foreign residence, and severed ties to your state.

How Do I Keep My IRA Accounts Open While Living Abroad?

Some U.S. financial institutions have become reluctant to serve Americans living abroad due to the complexity of regulations.

Expat-Friendly IRA Custodians

Fidelity
Vanguard
Charles Schwab
Interactive Brokers

May restrict or close accounts:

Some regional banks and credit unions
Certain online-only brokerages
Small independent custodians

Maintaining Your Account

Maintain a U.S. address (family member, mail forwarding service)
Keep a U.S. phone number (Google Voice, Skype number)
Inform your custodian of your foreign residence
Set up electronic delivery of all documents
Maintain access to your online account before moving
Set up automatic distributions if taking regular withdrawals

Pro Tip

Set up distributions via direct deposit to a U.S. bank account that you can then transfer internationally. This avoids potential international wire complications.

How Do Currency Exchange Rates Affect My IRA Distributions?

Every IRA distribution involves currency exchange if you’re living abroad. Minor differences compound over the course of decades of retirement.

Exchange Rate Strategies

Dollar-cost averaging your distributions: Instead of taking a large annual lump sum, consider making quarterly or monthly distributions to average out exchange rate fluctuations.
Timing flexibility: If you have some flexibility, monitor exchange rates and consider taking distributions when rates are favorable (while still meeting any RMD deadlines).
Hedging strategies: Some expat retirees maintain accounts in both U.S. dollars and local currency, providing a buffer against exchange rate volatility.

Example – Exchange Rate Impact:

Annual RMD: $30,000

If the USD/EUR rate is 0.92: You receive €27,600
If the USD/EUR rate is 0.88: You receive €26,400
Difference: €1,200 annually (nearly $1,300)
Over 20-year retirement: Potential €24,000 impact from rate timing

What Should I Know About Estate Planning with IRAs Abroad?

Your IRA doesn’t end when you pass away. Proper estate planning ensures your heirs receive maximum value.

Beneficiary Designations Matter More Abroad

Critical importance: Your IRA beneficiary designation takes precedence over your will. If you named your ex-spouse 20 years ago and never updated it, they’ll receive the IRA regardless of what your will says.
Review regularly: Update beneficiaries after significant life events (marriage, divorce, births, deaths).
Consider foreign spouse implications: Non-U.S. citizen spouses are subject to special rules. They can’t do spousal rollovers to inherited IRAs without careful planning.

Inherited IRA Rules for Foreign Beneficiaries

10-year rule: Most non-spouse beneficiaries must empty inherited IRAs within 10 years of your death.
Foreign tax complications: Your heirs living abroad will face the same foreign taxation issues you did, plus potential estate tax issues.
Consider Roth conversions: Converting to a Roth before death allows heirs to receive tax-free distributions (in the U.S.; foreign countries may still impose taxes).

Trust Strategies

Some expat retirees establish trusts to hold IRA beneficiary designations, providing:

Professional management for non-financially sophisticated heirs
Protection from foreign creditors
Control over distribution timing
Tax planning flexibility

Important: IRA trusts are complex and require expert legal and tax advice. Not suitable for everyone.

What Tax Forms Do I Need to File for IRA Distributions Abroad?

All IRA distributions are reported to the IRS: Your custodian sends you Form 1099-R and reports the distribution to the IRS.
You must file a U.S. tax return: Even if you owe no tax due to Foreign Tax Credits, you must file Form 1040 reporting the distribution.
Foreign tax reporting: You’ll need to file Form 1116 (Foreign Tax Credit) if claiming credits for foreign taxes paid on IRA distributions.
FBAR and FATCA: IRAs held at U.S. institutions don’t require FBAR or FATCA reporting. However, if you move IRA funds to a foreign account (not recommended), reporting requirements apply.

Common Questions Retirees Ask About IRAs Abroad

Can I transfer my IRA to a bank outside the United States?

Technically possible but almost never advisable. Foreign retirement accounts are subject to complex PFIC and foreign trust taxation. Keep your IRA at a U.S. institution.

What if my country of residence doesn’t allow me to maintain U.S. investment accounts?

Use a U.S. address with your custodian. Your physical location doesn’t determine account eligibility; your citizenship and tax residence do.

Do I need to report my IRA to my foreign country?

Depends on your country’s tax laws. Many countries require disclosure of foreign financial accounts and assets. Consult a local tax advisor.

Can I contribute to an IRA while living abroad in retirement?

Only if you have U.S. taxable earned income, retirement income, pensions, Social Security, and investment income don’t count as earned income for contribution purposes.

Your IRA distributions may affect how much of your Social Security is taxable, but they won’t reduce your Social Security benefit amount.

Working with Greenback: IRA Management for Expat Retirees

Managing IRA distributions while living abroad requires coordinating U.S. tax obligations with foreign tax laws, a complex challenge that differs from domestic retirement planning.

Greenback is an American company founded in 2009 by U.S. expats for expats. We have focused exclusively on expat taxes from the beginning. Many of our CPAs and Enrolled Agents are expats themselves, and because they live in 14 time zones, they experience firsthand the challenges of managing retirement accounts from abroad.

No matter how complex your IRA situation may be (multiple accounts, early retirement distributions, foreign tax coordination, or estate planning), we can help. You’ll have peace of mind, knowing that your retirement strategy was done right.

If you’re ready to be matched with a Greenback accountant who specializes in expat retirement planning, click the get started button below. For general questions on managing IRAs abroad or working with Greenback, contact our Customer Champions.

Get Personalized Help Managing Your IRA From Abroad.

Coordinate distributions, RMDs, and Foreign Tax Credits the right way.

This article provides general information about IRA management for American retirees living abroad. Tax laws change frequently, and individual circumstances vary significantly. Every retiree’s situation is unique based on their specific country of residence, income sources, and financial goals. This content is for educational purposes only and does not constitute legal, tax, or financial advice. Always consult with qualified tax and financial professionals who are familiar with both U.S. tax law and the tax regulations of your country of residence before making IRA distribution, conversion, or planning decisions.

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Tax Treaties and Double Taxation:

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