Knowledge Center Tax Advice for Specific Needs

How Do U.S. Taxes Work When You Retire Abroad?

How Do U.S. Taxes Work When You Retire Abroad?

According to IRS data analyzing returns from 2016-2021, 62% of expats owe $0 in U.S. taxes after applying available tax protections. If you’re retiring abroad, there’s an excellent chance you’ll join them.

You’ll still need to file U.S. tax returns, but most retirees won’t owe additional taxes beyond what they’re already paying in their new country. Between tax treaties, the Foreign Tax Credit, and proper planning, you can enjoy your retirement abroad with complete peace of mind about your U.S. tax obligations.

This comprehensive guide covers everything from filing requirements and Social Security taxation to country-specific considerations and coordinating multiple pension sources.

Do I Still Need to File U.S. Taxes If I Retire Abroad?

Yes. The United States taxes its citizens on worldwide income regardless of where they live. You’ll need to file a U.S. federal tax return each year, even if all your income comes from foreign pensions or investments.

However, filing doesn’t mean paying. The IRS provides several protections specifically designed to prevent double taxation for retirees abroad:

Tax treaties with 60+ countries often reduce or eliminate U.S. tax on foreign pension income
Foreign Tax Credit gives you a dollar-for-dollar credit for taxes paid to your host country
Standard deduction ($16,550 for single filers, $33,100 for married filing jointly in 2026) reduces taxable income

Most retired expats discover they owe little to no additional U.S. taxes once these protections are applied.

Important

You may also need to file a state tax return depending on which state you lived in before moving abroad. States like California, Virginia, and New Mexico are particularly persistent about taxing former residents.

File your retiree expat taxes correctly. Minimize what you owe.

Retiring abroad changes how Social Security, pensions, and retirement withdrawals are taxed. Connect with an expat tax specialist who will handle your filing, apply the right treaty benefits and credits, and keep everything compliant.

Your Social Security benefits follow the same taxation rules abroad as they would in the U.S. Whether your benefits are taxable depends on your total income:

Single filers:

Combined income under $25,000: No tax on Social Security
Combined income $25,000-$34,000: Up to 50% of benefits taxable
Combined income over $34,000: Up to 85% of benefits taxable

Married filing jointly:

Combined income under $32,000: No tax on Social Security
Combined income $32,000-$44,000: Up to 50% of benefits taxable
Combined income over $44,000: Up to 85% of benefits taxable

Tax treaty benefits:

If you live in certain countries, your Social Security may be exempt from U.S. taxation entirely. Countries with favorable Social Security tax treaties include:

Canada (taxed only by country of residence)
Germany (taxed only by the paying country)
United Kingdom (taxed only by country of residence)
Ireland (exempt from U.S. tax)
Israel (exempt from U.S. tax)

Payment restrictions: You can receive Social Security in most countries. However, the Treasury Department prohibits payments to residents of Cuba, North Korea, and several former Soviet republics (Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Uzbekistan).

What Happens to My 401(k) and IRA When I Retire Overseas?

Your retirement accounts stay with you, and the tax treatment remains essentially the same. Keep them with U.S. institutions and manage them remotely.

Traditional Retirement Accounts

401(k) and Traditional IRA:

Withdrawals are taxed as ordinary income by the IRS
Your host country may also tax these withdrawals
Use the Foreign Tax Credit to offset double taxation
Required Minimum Distributions (RMDs) still apply at age 73

Example: Sarah retired to Portugal at the age of 68. She takes $40,000 annually from her 401(k). Portugal taxes this at 20% ($8,000). She uses the Foreign Tax Credit on her U.S. return to offset the $8,000, so she owes no additional U.S. tax.

Roth Accounts

Roth IRA:

Qualified withdrawals remain tax-free for U.S. purposes
Some countries don’t recognize Roth accounts and may tax withdrawals
Check your host country’s tax treaty provisions

Pro Tip

Transferring U.S. retirement accounts to foreign accounts typically triggers immediate U.S. taxation and early withdrawal penalties. Our guide on managing retirement accounts overseas covers how to keep accounts in the U.S. while living abroad.

Do I Have to Report My Foreign Pension to the IRS?

Yes. Foreign pension income must be reported on your U.S. tax return, but tax treaties often provide relief:

Reporting Requirements

Report all foreign pension income on Form 1040
Include both employer-sponsored pensions and government pensions
Report lump-sum distributions in the year received

Tax Treaty Benefits

Many countries have treaties that reduce U.S. taxation on foreign pensions:

Private pensions: Often taxed only by the country of residence
Government pensions: Usually taxed only by the paying country
Social security equivalent payments: Frequently exempt from U.S. tax

Example: John receives a private UK pension of £30,000. Under the U.S.-UK treaty, this pension is only taxable in the UK (where he’s a resident). He still reports it on his U.S. return but claims a treaty benefit on Form 8833, paying no U.S. tax.

Important

Government pensions (from former government employment) have different treaty rules than private pensions. Review the specific treaty provisions applicable to your country.

If you’ll receive pensions from multiple countries, strategic planning becomes critical. Our guide on coordinating U.S. Social Security with foreign pensions explains timing strategies that can increase your lifetime benefits by $50,000 or more.

Will I Be Taxed Twice on My Retirement Income?

It’s possible to owe taxes to both countries, but the U.S. provides strong protection against double taxation through the Foreign Tax Credit.

How the Foreign Tax Credit Works

This gives you a dollar-for-dollar credit for foreign taxes paid. If your host country has higher tax rates than the U.S., the Foreign Tax Credit typically eliminates all U.S. tax liability.

Process:

Pay your host country’s taxes first
File your U.S. return and report all income
Claim Foreign Tax Credit on Form 1116
Credit reduces your U.S. tax by the amount paid abroad

Real-World Examples

High-tax country: Maria lives in France and has $60,000 in retirement income. France taxes this at 30% ($18,000). Her U.S. tax would be $9,000, but she claims a $9,000 Foreign Tax Credit, reducing her U.S. tax to $0.

Low-tax country: David lives in Panama (no income tax) with $80,000 in retirement income. He pays $0 to Panama, so he’ll owe his full U.S. tax liability since he has no foreign taxes to credit.

Take Note

Tax treaties with high-tax countries typically mean you’ll owe little to no U.S. tax. Countries with low or no income tax mean you’ll pay the full U.S. amount.

Do I Need to Report My Foreign Bank Accounts?

Yes. Retirees abroad typically need to file additional reporting forms beyond their tax return:

FBAR (Foreign Bank Account Report)

Required if total foreign accounts exceed $10,000 at any point during the year
Includes checking, savings, investment accounts, and foreign pensions
File electronically by April 15 (automatic extension to October 15)
Penalties for non-filing can be severe

Learn more about FBAR filing requirements

FATCA (Form 8938)

Required if foreign financial assets exceed thresholds:
- Single/MFS living abroad: $200,000 on the last day OR $300,000 anytime during the year
- MFJ living abroad: $400,000 on the last day OR $600,000 anytime during the year
Filed with your tax return
Includes foreign pensions, stocks, and mutual funds

Learn more about FATCA reporting

Example: Robert has $150,000 in a Portuguese bank account earning retirement income. He must file FBAR (exceeds $10,000) but not Form 8938 (under $200,000 as a single filer).

Can I Sell My U.S. Home After Retiring Abroad?

Yes. Selling your U.S. home while living abroad doesn’t change the tax treatment:

Primary residence exclusion still applies: Up to $250,000 gain excluded ($500,000 for married couples)
You must have lived in the home for 2 of the last 5 years
Report sales on Schedule D and Form 8949

Pro Tip

Consider the timing of your sale. If your host country taxes capital gains, you may benefit from selling before establishing tax residence abroad.

Should I Renounce My Citizenship to Avoid Taxes?

For most retirees, renunciation doesn’t make financial sense. Here’s why:

What Renunciation Costs You

$2,350 renunciation fee required
Possible exit tax if net worth exceeds $2 million
All retirement account withdrawals are taxed at a flat 30% for non-residents
No more treaty benefits once citizenship is renounced
Cannot claim Foreign Tax Credit as a former citizen
Ability to live in the U.S. without visa restrictions
Medicare benefits (requires U.S. presence)
Social Security benefits continue, but at 30% withholding
U.S. passport and consular protection

When It Might Make Sense

Very high net worth individuals in low-tax countries
Strong ties to another country
No intention of ever returning to the U.S.
Complex estate planning needs

Take Note

This is a permanent, life-changing decision. Consult with both a tax professional and an immigration attorney before proceeding.

Where Should I Retire Abroad for the Best Tax Treatment?

Choosing where to retire abroad depends on your priorities, including the cost of living, healthcare quality, tax rates, climate, and cultural fit. Here’s how popular destinations compare:

Tax-Free and Low-Tax Countries

Our comprehensive guide to 15 tax-free retirement countries covers the best options, including:

Panama offers territorial taxation (no tax on foreign income) and the Pensionado visa, requiring only $1,000 monthly pension income. Monthly costs range from $2,000 to $3,000. Your Social Security, pensions, and retirement withdrawals remain completely tax-free in Panama. Most retirees owe $0 in U.S. taxes after applying the standard deduction.

Costa Rica offers the Pensionado Program, which requires a monthly pension income of $1,000. The country doesn’t tax foreign-sourced income, meaning that your Social Security and U.S. pensions are exempt from Costa Rican taxation. Healthcare ranks #1 in Latin America, with the CAJA national system costing $40-$80 monthly. Monthly costs average $2,800 to $3,500.

Greece established a special tax program, offering a flat 7% tax on all foreign income for a period of 15 years. The program requires a monthly income of € 3,500 and provides one of Europe’s most favorable tax regimes for retirees.

European Retirement Destinations

Portugal attracts retirees with its D7 Passive Income Visa, mild climate, and safety rankings. The Non-Habitual Resident tax regime can provide significant tax benefits on foreign pension income. Monthly costs range from $2,500 to $3,500.

Spain offers the Non-Lucrative Visa, which requires an annual income of € 28,800. Cities like Valencia, Alicante, and Málaga offer over 300 days of sunshine, world-class healthcare, and monthly costs ranging from $2,500 to $4,000. The U.S.-Spain tax treaty often eliminates double taxation on retirement income.

France provides retiree residency options with access to world-class healthcare. The U.S.-France tax treaty stipulates that U.S.-source pensions are taxable only in the U.S., thereby eliminating double taxation. Monthly costs vary widely, ranging from $2,500 in rural areas to over $ 5,000 in Paris.

Italy offers the Elective Residency Visa, which requires an annual income of € 32,000 (€38,000 for couples). Southern Italy and smaller towns provide exceptional value at $2,000-$3,000 per month, while cities like Rome and Milan tend to be more expensive.

Latin American Retirement Hubs

Mexico remains highly popular for its proximity to the U.S. and affordability. The Temporary Resident Visa is ideal for retirees, with monthly costs ranging from $2,000 to $3,500. Popular retirement areas include San Miguel de Allende, Lake Chapala, Puerto Vallarta, and Mérida. Mexico’s territorial tax system means that foreign-sourced income typically avoids taxation in Mexico.

Canadian Pensions for U.S. Citizens

If you’ve worked in Canada, you may be eligible for the Canada Pension Plan (CPP) and Old Age Security (OAS). The U.S.-Canada treaty specifies that Canadian social security benefits paid to U.S. residents are taxed only in the United States. Learn about Canadian pension taxation and how these coordinate with U.S. tax obligations.

What If I’m Behind on Filing My Retirement Taxes?

Many expat retirees discover their filing obligation years after they have moved abroad. The IRS provides a penalty-free way to catch up:

Streamlined Filing Compliance Procedures

File the last 3 years of tax returns
File the previous 6 years of FBARs
Self-certify your failure to file was non-willful
Generally, there are no penalties if you qualify

Learn more about streamlined filing

Example: Helen retired to Italy in 2018 and never filed U.S. taxes. In 2026, she discovers her obligation. She uses streamlined procedures to file returns for 2023, 2024, and 2025 (the last three years), as well as FBARs for 2020-2025 (the previous six years). She avoids all penalties.

Important

Don’t wait. The longer you delay, the more complicated it becomes to catch up. Our late tax filing services can help you get back on track.

Retiring Abroad Means Peace of Mind with Greenback

Retiring abroad is an exciting chapter, not a tax burden. With proper planning and expert guidance, you can focus on enjoying your retirement while staying fully compliant with U.S. tax law.

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

Enjoy retirement abroad with confidence in your U.S. taxes.

You’ve earned peace of mind in retirement. Work with an expat tax expert who understands retiree income, foreign pensions, and reporting rules, so your U.S. taxes are filed correctly and efficiently every year.

This article is intended for informational purposes only and does not constitute legal or tax advice. Tax situations vary significantly based on individual circumstances, and it is recommended that you consult with a qualified tax professional regarding your specific situation.

Frequently Asked Tax Questions for Retirees Abroad

Can I contribute to my IRA while living abroad?

Possibly. You need U.S.-earned income to contribute, which most retirees don’t have. However, if you work part-time or consult, you may still contribute up to $8,000 ($9,000 if over 50) for 2026.

How do I file if I have income from multiple countries?

Report all worldwide income on your U.S. return. Use Form 1116 to claim Foreign Tax Credits for each country’s taxes. Our team handles multi-country situations regularly.

What happens to my U.S. investments when I retire abroad?

Keep them. Your U.S. brokerage accounts, mutual funds, and stocks remain accessible. Report all investment income and pay any required taxes, using the Foreign Tax Credit for taxes paid abroad.

Do tax treaties cover my investment income?

Typically, most treaties reduce withholding taxes on dividends and interest, although rates vary by country. Your CPA can help you claim the correct treaty rates.

Will I lose Medicare if I retire abroad?

Medicare generally doesn’t cover healthcare outside the U.S., except in limited emergency situations near borders. Most retirees maintain Medicare Part A (premium-free if you paid Medicare taxes) and enroll in local healthcare or international insurance. Some return to the U.S. for major procedures to use Medicare benefits.

Absolutely. There’s no legal restriction on collecting both. However, the Windfall Elimination Provision (WEP) may reduce your Social Security benefit if you receive a pension from work where you didn’t pay U.S. Social Security taxes. The recent repeal of WEP in 2024 may affect your situation, so consult with a tax professional about your specific circumstances.

What if I want to move back to the U.S. after retiring abroad?

You can return anytime. Your Social Security and U.S. retirement accounts remain accessible. You’ll need to reestablish state residency and may need to update your Medicare status. The transition is straightforward from a tax perspective.

Core Retirement Tax Guides

Reporting Requirements

Country-Specific Retirement Guides

Canadian Pension Resources

Free Guide 15 Tax Tips Every American Expat Needs To Know in 2025

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