Expat Retirement Taxes: What Americans Living Abroad Need to Know
Living abroad doesn't free you from the IRS. Here's what you need to know about U.S. taxes, FBAR, FATCA, and tax treaties as a retired expat.
Key Takeaways
- 1U.S. citizens owe federal taxes on worldwide income regardless of where they live.
- 2The Foreign Earned Income Exclusion (FEIE) mainly helps those with foreign employment, not retirees.
- 3FBAR (FinCEN 114) is required if foreign accounts exceed $10,000 total at any time during the year.
- 4FATCA (Form 8938) has higher thresholds but applies to more asset types.
- 5Tax treaties can prevent double taxation but don't eliminate U.S. tax obligations.
- 6Some states continue taxing you even after you move abroad.
The U.S. Taxes Citizens Worldwide
The United States is one of only two countries that taxes citizens on worldwide income regardless of residence (the other is Eritrea).
- **Filing requirement:** You must file U.S. taxes every year as an American citizen
- **All income included:** Social Security, pensions, 401k/IRA withdrawals, investments
- **Living abroad doesn't change this:** Moving overseas doesn't reduce your U.S. tax obligations
- **Only way out:** Renouncing citizenship (extreme, expensive, and complex)
- **Penalties severe:** Failing to file can result in significant penalties, even if you owe nothing
Common Misconception
Many Americans believe that living abroad for a certain period exempts them from U.S. taxes. This is false. Filing is required every year.
FEIE: Why It Doesn't Help Most Retirees
The Foreign Earned Income Exclusion (FEIE) allows you to exclude foreign earned income from U.S. taxes (up to $126,500 in 2024). However, it has major limitations for retirees.
- **Only "earned" income qualifies:** Wages, self-employment, business income
- **Does NOT include:** Social Security, pensions, 401k/IRA withdrawals, investment income
- **Retirees rarely benefit:** Most retirement income is "unearned" and not excludable
- **Must meet tests:** Physical presence (330 days abroad) or bona fide residence test
- **Still useful for:** Part-time work, consulting, or rental income from foreign properties
| Income Type | FEIE Excludable? | Notes |
|---|---|---|
| Social Security | No | Always taxed by U.S. |
| Pension | No | U.S. tax applies |
| 401k/IRA Withdrawals | No | Taxed as ordinary income |
| Dividends/Interest | No | Investment income not earned |
| Foreign Employment | Yes | Up to $126,500 (2024) |
| Self-Employment Abroad | Yes | Self-employment tax still applies |
FBAR and FATCA: Critical Reporting Requirements
Living abroad means having foreign bank accounts. The U.S. requires reporting these accounts under penalty of severe fines.
- **FBAR (FinCEN 114):** Required if total foreign accounts exceed $10,000 at ANY point during year
- **FBAR deadline:** April 15 with automatic extension to October 15
- **FBAR penalties:** Up to $12,909 per violation (non-willful); $129,210 or 50% of balance (willful)
- **FATCA (Form 8938):** Required for expats with foreign assets exceeding $200,000 (single) year-end
- **FATCA includes more:** Bank accounts, stocks, foreign pensions, life insurance, mutual funds
- **Both may be required:** Different thresholds and different assets - file both if applicable
| Requirement | FBAR | FATCA (Form 8938) |
|---|---|---|
| Threshold (Expat) | $10,000 total | $200,000 year-end / $300,000 any time |
| What's Included | Bank accounts only | All financial assets |
| Where to File | FinCEN website | With tax return |
| Penalties | Up to $129,210 | Up to $50,000 |
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Tax Treaties: Avoiding Double Taxation
The U.S. has tax treaties with many countries to prevent being taxed twice on the same income.
- **Purpose:** Determine which country has taxing rights on different income types
- **Foreign Tax Credit:** If you pay taxes abroad, you can often credit that against U.S. taxes
- **Social Security:** Treaties often specify only one country can tax SS benefits
- **Pensions:** Many treaties give exclusive taxing rights to one country
- **Not elimination:** Treaties reduce but don't eliminate U.S. tax obligations
- **Varies by country:** Portugal, Costa Rica, Panama all have different arrangements
Professional Help Recommended
Expat tax situations are complex. An accountant specializing in expat taxes ($500-1,500/year) can save you thousands in avoided mistakes and optimized planning.
State Taxes: The Forgotten Obligation
Moving abroad doesn't automatically end your state tax obligations. Some states are "sticky."
- **No state income tax:** TX, FL, NV, WA, WY, AK, SD, TN, NH - cleanest break
- **"Sticky" states:** CA, VA, SC, NM may claim you as resident even after leaving
- **California especially:** Requires clear proof of intent to leave permanently
- **Domicile matters:** Where you vote, have a driver's license, own property
- **Pre-move planning:** Establish residency in a no-tax state before moving abroad
- **Example:** Move to Texas for 6 months, then abroad - cleaner than CA to abroad
| State Type | Examples | Risk Level |
|---|---|---|
| No Income Tax | TX, FL, NV, WA | Clean break |
| Easy Exit | Most states | Low - follow procedures |
| Sticky States | CA, VA, SC, NM | May claim you're still resident |
| Very Sticky | California | Aggressive; document everything |
IRS Statute of Limitations Doesn't Start Without Filing
If you don't file, the IRS statute of limitations never starts. They can audit you for taxes from 20 years ago if you never filed. Even if you owe nothing, FILE to start the clock.
Tax-Advantaged Gold for International Retirement
A Gold IRA maintains its tax-advantaged status regardless of where you live.
- Gold IRA taxation remains the same whether you're in the U.S. or abroad
- Physical gold provides value beyond any single country's tax system
- Roth Gold IRA withdrawals remain tax-free even as an expat
- Diversify before your international move for simpler transition
- Gold value is universal - recognized worldwide regardless of tax domicile
- Protect against currency risk when managing money across countries
Frequently Asked Questions
1Can I avoid U.S. taxes by living abroad for 330 days?
No. The 330-day rule is for the Foreign Earned Income Exclusion, which only applies to earned income (wages, self-employment). Retirement income like Social Security, pensions, and 401k withdrawals remains fully taxable by the U.S.
2Do I need to report my foreign retirement accounts?
Possibly. Foreign pension plans, 401k equivalents, and retirement accounts may need to be reported on FBAR and/or FATCA. The rules are complex and depend on the account type. Consult an expat tax specialist.
3What if I've been abroad for years and never filed?
The IRS has a Streamlined Filing Compliance program for non-willful non-filers. You file 3 years of taxes and 6 years of FBARs with no penalties. If you owe nothing (common for moderate incomes), there's no cost. Do this ASAP.
4Should I renounce citizenship to avoid U.S. taxes?
This is an extreme measure with major consequences. There's an exit tax on unrealized gains, a $2,350 renunciation fee, potential Reed Amendment visa ban, and loss of all U.S. rights. Very few people find this worthwhile.
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