The Challenges of U.S. Retirement Accounts Abroad

If you are a U.S. citizen or U.S.-connected individual and you move abroad, things are not as simple as just picking up all of your accounts and moving them to wherever it is you now live. 

Firstly, U.S. retirement accounts such as Individual Retirement Accounts (IRAs) and 401(k)s are U.S.-based vehicles governed by Internal Revenue Service (IRS) rules. 

Unlike bank accounts, they cannot be moved into a foreign pension system or local retirement wrapper without being treated as a distribution. And this can trigger taxes and potential penalties. 

A key pain point for many people moving abroad is that 401(k) providers typically only allow withdrawals to a US-based bank account or an international paper cheque. 

A lot of U.S. companies do not like dealing with anyone who does not live in the country. So, if you do not have access to a U.S. bank account when you move, they will often close your retirement accounts and send out cheques via the postal system to whatever address they have on file for you, without informing you. 

Secondly, many U.S. brokerage firms restrict servicing expats because of regulatory complexities. 

This means you may not be able to trade, adjust, or even keep your account open long-term if your residency address is non-U.S. 

Then, there is a currency risk. Funds usually remain in USD, creating exchange rate risks when your retirement spending is in local currency. 

This is why it’s so important to ensure your money is held in the most suitable accounts – ones that not only align with your financial goals but also offer tax efficiency, accessibility, and flexibility for your current and future plans.

One of the most common questions we get from clients moving from the U.S. to somewhere else is: How will I be taxed? 

It is vital to remember that the U.S. taxes its citizens and green card holders on worldwide income, including retirement account withdrawals, even if you’re no longer resident. 

If you renounce U.S. citizenship or long-term residency (green card holders of eight or more years), the IRS treats it as a taxable exit. And the tax implications of doing this can be severe. 

It is arguably cheaper and easier to simply apply for U.S. citizenship and continue reporting to the IRS every year for the rest of your life, whether you live in the U.S or not. 

But this could mean you are double taxed, if your new country of residence also taxes your withdrawals. 

The U.S. has tax treaties with many countries including the UK, to prevent individuals from being taxed twice on the same income. These are referred to by a number of different names, depending on the country in which they are in place: agreements, covenants, conventions and protocols.

Generally, individuals pay tax in their country of residence and any U.S. withholding tax can often be reclaimed, although this typically requires tax advice. 

If a U.S. citizen or connected person withdraws from their IRA or 401(k) while abroad, there may be US withholding tax applied. This can sometimes be reclaimed under DTAs, but the process can be complex.  

Additionally, some countries do not recognise U.S. retirement accounts as tax-deferred vehicles, instead treating them like normal investment accounts.

Read more about the tax challenges of moving abroad in this article.

There are other reasons for someone to think about the structure of their plan and which 401(k) or IRA provider they choose, even if the company is happy for them to remain outside the U.S. 

For example, consider what challenges their dependants or beneficiaries might face if they die. 

If you die while living abroad, what happens to your retirement assets depends on several factors. 

If you have named a spouse or another beneficiary, the account typically passes directly to them, avoiding probate. 

However, if your spouse or beneficiary is not a U.S. resident or green card holder, the process can be more complicated. 

Some U.S. providers will not open an inherited or spousal rollover IRA/401(k) for a non-U.S. resident beneficiary. 

They may force a full distribution instead, closing the account and sending a cheque or wire. This often triggers immediate U.S. tax withholding of, usually, 20-30%. 

The U.S. imposes withholding tax on distributions to non-U.S. beneficiaries. 

The exact rate depends on tax treaties between the U.S. and the inheritor’s country of residence. 

Additionally, the beneficiary’s local country may tax the inheritance or the income. 

If you are not a U.S. citizen or green card holder but hold U.S.-situs assets, including retirement accounts, your estate could be exposed to U.S. estate tax above $60,000 in value, unless treaty protection applies. 

Plus, providers may freeze accounts pending paperwork. Beneficiaries often need to obtain a U.S. taxpayer identification number to receive the funds. 

Moving abroad is an enticing opportunity to expand your horizons and build a life that aligns with your dreams. But, as is evident, leaving the U.S. comes with complex financial, tax and estate considerations that must not be ignored. 

From portability issues with retirement accounts to double taxation risks and estate tax exposure, failing to plan can turn your exciting new chapter into a stressful and costly experience. 

At Hoxton Wealth, we specialise in helping U.S. citizens and U.S.-connected individuals navigate the financial complexities of international moves. 

Whether you’re relocating for work, family or retirement, our team can help ensure your wealth remains accessible, tax-efficient and structured for your future – wherever in the world that may be.