The Tax Implications of Retiring Abroad

Retiring abroad can offer a lower cost of living and an exciting lifestyle, but US retirees living abroad continue to owe US tax on their worldwide income — including Social Security, pension distributions, IRA withdrawals, and investment income. Social Security benefits can be received by direct deposit to most countries, and while they may be taxable in the US, some tax treaties provide that they're only taxable in the country of residence. Required Minimum Distributions from US retirement accounts must still be taken once you reach the applicable age (73 under current law), and the distributions are taxable as ordinary income on your US return even if you're living in a zero-tax country. Foreign pension income from a country where you worked is also reportable, with treaty provisions often determining whether the US can tax it. Retirees should plan the sequence of account withdrawals carefully — Roth conversions and other planning done before age 73 or before expatriation can significantly reduce lifetime taxes.