Retiring Abroad with a U.S. Pension: What Every Expat Needs to Know in 2025

Retiring Abroad?

Thinking of retiring overseas with a U.S. pension? Read this first.

Have you lived in the United States as a citizen or green card holder for more than eight years and are now planning to move abroad—or have you already taken the leap? Do you still have a 401(k) or Individual Retirement Account (IRA) in the U.S.?

If the answer to both questions is “yes,” you’re not alone—and this guide is for you.

At first glance, moving overseas may seem like the perfect retirement dream. But if you have U.S.-based retirement savings, that dream can quickly turn into a tax and compliance nightmare without the right planning.

Your Pension Doesn’t Travel With You

One of the most common concerns Blacktower advisers hear is:
“Will I lose money on my pension or retirement account when I move abroad?”

The short answer: It depends. Several key factors affect how your U.S. retirement accounts will be taxed abroad:

• The type of account you hold (e.g. traditional vs. Roth)
• The tax treaty between the U.S. and your new country of residence
• Your residency status and local tax laws

Let’s break it down.

401(k)s and IRAs: What’s the Difference When Living Abroad?

If you’ve worked in the U.S., you likely have a 401(k). These accounts are typically set up by employers and funded with pre-tax contributions. However, many expats choose to roll their 401(k) into an IRA, which often offers:

• Lower fees
• More investment flexibility
• Easier management when dealing with multiple accounts

But here’s the catch: IRAs still count as U.S.-based accounts and can’t be transferred to a foreign retirement vehicle. That means they’ll continue to be subject to U.S. tax rules—even after you move.

Even Roth IRAs, which allow tax-free withdrawals in the U.S., are not recognised as tax-free in most other countries. They may be treated as taxable pensions, meaning you could be taxed again upon withdrawal.

Risk of Double Taxation: A Hidden Threat

Without the right planning, U.S. expats can find themselves taxed twice on their retirement income:

1. Once by the IRS when withdrawing from a 401(k) or IRA
2. Again by the local tax authority in their new country of residence

Fortunately, the U.S. has tax treaties with many countries that can reduce or eliminate this risk—but only if you plan correctly and act ahead of time.

Treaty terms vary depending on the country and income type. For example:

• Some treaties provide relief on pension withdrawals
• Others offer foreign tax credits
• A few eliminate double taxation altogether

That said, not all custodians or financial institutions apply treaty benefits automatically. Some default to a flat 30% withholding tax on all distributions to foreign addresses—regardless of your actual tax status or treaty eligibility.

Understanding Withholding Tax and Currency Risks

Withholding tax is one of the most overlooked complications for U.S. expats.

Once you inform a U.S. pension custodian that you’re living abroad, they may automatically apply a 30% flat tax on withdrawals, even if a treaty exists that should reduce this. While you can claim this back later, it’s a time-consuming and paperwork-heavy process.

You also face:

• FX conversion costs when converting dollars to local currency
• Potential delays or restrictions on transferring funds to a foreign bank
• Complicated U.S. tax reporting if you retain U.S. ties

In some cases, these issues can reduce your real income by thousands each year.

Roth Accounts Are Not Immune

Roth IRAs and Roth 401(k)s are often misunderstood by expats. In the U.S., they’re considered tax-efficient vehicles because withdrawals are tax-free.

But most foreign tax authorities don’t recognise this tax-free status. They may see Roth accounts as pensions—and therefore taxable under local laws. You could unknowingly face taxation on what you assumed would be tax-free income.

Again, your specific situation will depend on the tax treaty—if one exists.

Early Withdrawals? Think Twice

In the U.S., early withdrawals (before age 59½) typically come with a 10% penalty, on top of income tax. Yet for many expats, unexpected life events abroad—such as health issues or urgent expenses—may tempt early access.

But if you’re not careful, you could face:

• 10% penalty
• IRS income tax
• Local income tax
• Currency conversion loss

That’s a perfect storm for diminishing your hard-earned savings.

The Expat Retirement Checklist

Here are the key steps every U.S.-connected expat should take when moving abroad with a 401(k) or IRA:

✅ Identify your account types (Traditional, Roth, etc.)
✅ Review your country’s tax treaty with the U.S.
✅ Speak with a cross-border financial adviser
✅ Consider consolidating old 401(k)s into an IRA
✅ Plan for currency conversion and FX fees
✅ Get clarity on local tax treatment of pension income
✅ Avoid early withdrawals unless essential
✅ Factor in withholding tax and recovery procedures

Why Professional Help Matters

The rules governing U.S. retirement accounts for expats are complex, inconsistent, and ever-changing. Even seasoned financial professionals can struggle to navigate the details.

Working with an adviser who understands both U.S. retirement law and international tax structures can help you:

• Aim to minimize tax exposure
• Aim maximize retirement income
• Avoid regulatory pitfalls
• Build a sustainable cross-border retirement plan

How Blacktower Can Help

At Blacktower Financial Management, we specialise in helping U.S.-connected individuals transition their finances seamlessly across borders. From 401(k) and IRA consolidation to retirement income planning and tax treaty optimisation, our team is here to guide you every step of the way.

📞 Ready to make your move abroad seamless/stressfree/successful?

Get in touch with a Blacktower adviser today →

Disclaimer: This content is for informational purposes only. Investment advice and investment advisory services offered and provided through Blacktower Financial Management US, LLC. This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice, tax recommendations, investment recommendations or investment research. You should seek advice from a professional before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.