Expat Taxes: Tax Considerations for Retiring Abroad

Guest article by Ines Zemelman, EA - Founder of Taxes for Expats

After a lifetime of working, you are finally able to spend your days enjoying leisure. RetirePedia has a wealth of information of where you can settle in your golden years, but it is important to remember that even though you no longer need to worry about work, you will always need to think about taxes.

For US citizens and Green Card holders, US tax requirements will follow you to any beach in the world.

Taxes for Expats offers a comprehensive tax guide for retirement. Below is an abbreviated expat taxes FAQ covering key issues to keep in mind if you plan to retire overseas.

Expat Taxes: Tax Considerations for Retiring Abroad

Expat Taxes: Are IRA Distributions and US Pensions Taxed?

All US employer pension distributions and traditional IRA distributions are fully taxable in the U.S. no matter where you live. On a positive note, pension distributions are exempt from state taxation.

Distributions received while residing in the United States will be taxed according to the state tax laws where you reside, not where the money was earned.

As always, Roth IRA distributions are not taxable since these accounts were funded using after-tax contributions.

Expat Taxes: Are Social Security Benefits Taxable?

The rules for Social Security income taxes are a bit more complex. These vary based on the country you are living in. There are only eight countries where United States Social Security benefits are not taxed:

  • Canada
  • Germany
  • Ireland
  • Italy (only if you are also an Italian citizen)
  • United Kingdom
  • Romania
  • Egypt
  • Israel

Unfortunately for those choosing Central American countries as their retirement country, they are not on this list - so Social Security benefits are subject to tax.

For residents of any country that is not in this list, Social Security benefits will be taxed using the same requirements as for someone still living in the United States.

You must pay taxes on your benefits if you file a federal tax return as an "individual" and your "combined income" exceeds $25,000. If you file a joint return, you must pay taxes if you and your spouse have "combined income" of more than $32,000. If you are married and file a separate return, you probably will have to pay taxes on your benefits.
Source: Social Security website

For holders of Green Cards, make sure to understand the conditions that apply by reading the Social Security Administration publication.

Am I Required to Purchase Health Insurance?

Affordable Care Act penalties will not apply if you retire abroad, so you are not required to purchase US health insurance. If you intend to stay abroad for a significant period of time you may be able to claim Bona fide residence status and qualify for an exemption from the ACA requirements.

If you have earned your Medicare benefits, you are also exempt from the ACA penalties regardless of where you live - but keep in mind that you won’t have Medicare benefits while living outside the US.

If you aren’t old enough for Medicare benefits, you might qualify for exemption from the health care insurance requirements for the time you lived outside the US, assuming you pass the test for Physical Presence. It is not necessary to submit a Form 2555.

Editor's Note: Even though you are not required to purchase US health insurance as an expat retiree, I would recommend to purchase international health insurance. We've compared some of the most popular international medical insurance providers for you. 

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