Managing Pensions and 401(k) from Abroad: What American Expats Need to Know

# Managing Pensions and 401(k) from Abroad: What American Expats Need to Know

On January 5, 2025, President Biden signed the Social Security Fairness Act (Public Law 118-273), repealing the Windfall Elimination Provision and Government Pension Offset that had reduced Social Security benefits for an estimated 3.2 million Americans — including retired teachers, firefighters, and expats who earned foreign pensions. The Social Security Administration began issuing retroactive payments in February 2025, with one-time back payments averaging $6,710 per affected retiree. For American expats drawing foreign pensions alongside US benefits, this single law change can add thousands of dollars per year in income.

It's also a useful reminder that the rules governing US retirement accounts for Americans abroad are not static — and that most of the guidance floating around expat forums is out of date. Below is what currently applies if you're trying to contribute to, manage, or draw down a 401(k), IRA, or pension while living outside the United States.

Your Brokerage May Not Want You as a Customer

The first problem most expats hit has nothing to do with taxes. It's that major US brokerages restrict or close accounts held by customers with foreign addresses. This is driven by FATCA reporting burdens, FINRA suitability rules, and securities licensing requirements that differ in every foreign jurisdiction.

The practical picture as of 2025:

• **Vanguard** generally will not open new accounts for non-US residents and has, since 2021, declined to accept new purchases in mutual funds for clients with foreign addresses. Existing 401(k)s rolled to IRAs may be frozen to new contributions.
• **Fidelity** allows existing customers to maintain accounts with a foreign address but restricts mutual fund purchases; ETFs are typically still permitted.
• **Charles Schwab** operates Schwab International (Schwab One International Account), which is explicitly designed for non-US residents and remains one of the more expat-friendly options. However, Schwab International does not hold US retirement accounts — IRAs and 401(k)s stay on the domestic platform, which has its own residency restrictions.
• **Interactive Brokers** accepts clients in most countries and supports IRAs, making it a common destination for expats moving accounts.

Before you move abroad, call your custodian and ask specifically: (1) can I keep this account with a foreign address, (2) can I continue to buy and sell within it, and (3) will you mail correspondence to my new country. Get the answer in writing. Several expats each year discover their account has been restricted only after the IRS sends a notice about a forced distribution.

A US mailing address at a friend's or family member's home is not a clean workaround. Brokerages increasingly cross-reference IP addresses, phone numbers, and tax residency declarations, and misrepresenting your residence on financial account paperwork carries its own legal risk.

Contribution Rules Don't Stop at the Border — But the FEIE Can Block Them

The 2025 employee contribution limit for 401(k), 403(b), and most 457 plans is **$23,500**, with an additional $7,500 catch-up for those age 50+ and a new $11,250 "super catch-up" for ages 60–63 under SECURE 2.0. The IRA limit is **$7,000** ($8,000 with catch-up). These limits apply whether you live in Des Moines or Lisbon.

The trap is that IRA contributions require **earned income that is taxable in the United States**. If you claim the Foreign Earned Income Exclusion (FEIE) on Form 2555 — which excludes up to **$126,500** of foreign wages in 2025 — the excluded income does not count as compensation for IRA purposes. Expats who zero out their US taxable income with the FEIE often cannot contribute to a Roth or traditional IRA at all that year.

Two workarounds:

1. **Only exclude part of your income.** Leave enough above the FEIE threshold to cover the IRA contribution. This only helps if your foreign tax bill is low enough that the US tax on the non-excluded slice is tolerable.
2. **Use the Foreign Tax Credit (Form 1116) instead of the FEIE.** The FTC preserves earned-income status for IRA purposes. For expats in high-tax countries like Germany, the UK, or France, the FTC often produces a better result anyway because foreign tax already exceeds what the US would charge.

401(k) contributions through a US employer's plan are unaffected by the FEIE question — they come out of pre-tax wages before the FEIE calculation. If you work remotely for a US company while living abroad, you can generally keep contributing.

Distributions: Where You Live Changes How You're Taxed

A 401(k) or traditional IRA distribution is taxable income in the United States regardless of where you live. Early withdrawals before age 59½ trigger the 10% penalty with the usual exceptions (substantially equal periodic payments under Rule 72(t), disability, first-time home purchase for IRAs, etc.). Required Minimum Distributions start at age **73** under SECURE 2.0 and rise to 75 for those born in 1960 or later.

The wrinkle is that your country of residence may also tax the distribution. Whether it does depends on the US tax treaty with that country. Treaty outcomes vary more than most retirees expect:

• **United Kingdom**: Article 17 of the US–UK treaty generally gives exclusive taxing rights to the country of residence. A US citizen retiree in the UK pays UK tax on 401(k) and IRA distributions and claims a foreign tax credit on the US return to avoid double taxation. Lump-sum distributions are treated differently — HMRC and the IRS have a long-running disagreement about whether lump sums are UK-taxable, and HMRC's current position (per their 2024 manual updates) is that they are.
• **France**: Under Article 18 of the US–France treaty, US-source pensions and retirement distributions are taxable only in the United States for US citizens. France exempts them but includes them in the progressive rate calculation.
• **Portugal**: The Non-Habitual Resident regime was closed to new applicants on January 1, 2024. New expats in Portugal generally face full Portuguese taxation on US retirement distributions at marginal rates up to 48%.
• **Spain**: Taxes worldwide income including US retirement distributions at rates up to 47% (higher in some autonomous communities). The treaty provides a foreign tax credit but does not exempt the income.

Never assume your treaty protects you without reading the actual article governing pensions — and check the technical explanation published by Treasury alongside the treaty, which is usually the clearest source on interpretation disputes.

Roth Accounts Are Not Universally Recognized

One of the most expensive expat mistakes is assuming Roth IRA and Roth 401(k) distributions are tax-free everywhere. The US treats qualified Roth distributions as tax-free; most foreign tax authorities do not.

A handful of countries explicitly recognize Roth status by treaty or administrative guidance — notably **Canada** (via a competent authority agreement) and **Belgium**, **Latvia**, **Lithuania**, and **Estonia** (via treaty language referencing tax-exempt pensions). In most other countries, including the UK, France, Germany, Spain, Australia, and Japan, a Roth distribution is taxable income at local rates. You still get no US tax offset because there's no US tax to credit against.

If you're planning to retire abroad, running the numbers on Roth conversions before you leave — while you're still a US-only resident — is often the highest-value tax move available. A conversion done in a low-income US year can lock in favorable treatment that disappears the moment you establish foreign residency.

The Reporting Forms That Catch People

Living abroad adds filing obligations that do not go away just because your retirement accounts are still at a US custodian.

• **FBAR (FinCEN Form 114)**: Required if the aggregate value of your foreign financial accounts exceeds $10,000 at any point during the year. US-held 401(k)s and IRAs are not reportable. Foreign pension accounts and any foreign bank accounts you use for daily life are. Penalties for willful non-filing start at $100,000 per violation or 50% of the account balance, whichever is greater (inflation-adjusted annually).
• **Form 8938 (FATCA)**: Required at higher thresholds — $200,000 end-of-year / $300,000 any-time for single filers living abroad. Filed with your 1040.
• **Form 8621**: Required if you hold a Passive Foreign Investment Company (PFIC), which includes most non-US mutual funds and ETFs. This is why foreign-held retirement accounts are often a trap — buying a UK or EU-domiciled fund inside a local pension can trigger punitive PFIC taxation unless the plan itself qualifies for treaty protection.
• **Form 3520/3520-A**: May be required for certain foreign pension trusts, though the IRS issued Revenue Procedure 2020-17 exempting many tax-favored foreign retirement plans from these filings.

Social Security benefits paid to US citizens are generally not subject to the 25.5% nonresident alien withholding, but they may be partially taxable on your US return (up to 85% depending on total income) and separately taxable in your country of residence.

Social Security, Totalization, and the 2025 Repeal

The Social Security Administration has **totalization agreements with 30 countries** (as of 2025), letting you combine US and foreign work credits to qualify for benefits and avoid double contributions to both systems. Countries with agreements include Canada, the UK, Australia, Japan, South Korea, and most of Western Europe. Countries without agreements — notably Mexico, Thailand, Vietnam, Malaysia, and most of Central and South America — mean self-employed expats can owe both US self-employment tax and local social charges.

Benefits can be paid to US citizens in nearly any country. The SSA maintains a list of countries where it cannot send payments (Cuba, North Korea, and a handful of former Soviet republics); if you live there, benefits accumulate and are paid when you move. A reliable US bank account with international ACH or an international direct deposit arrangement avoids the complications of mailed Treasury checks.

The January 2025 repeal of the WEP and GPO matters most for: (1) retirees who worked for a foreign government or foreign employer not covered by US Social Security, and (2) public-sector workers in the US (teachers, police, firefighters) in the 15 states with non-covered pension systems. If your benefit was reduced under WEP before 2025, the SSA is processing retroactive adjustments automatically — you do not need to apply.

Practical Action Items

1. **Before you move, confirm account access in writing.** Call every custodian holding your retirement assets and get written confirmation they will serve you in your destination country.
2. **Do Roth conversions while still a US resident** if you're within a few years of moving and expect to retire somewhere that will tax Roth distributions.
3. **Pick between the FEIE and Foreign Tax Credit deliberately.** If you want to contribute to an IRA, the FTC usually beats the FEIE.
4. **Read your destination country's treaty article on pensions.** Look for the technical explanation on the Treasury website, not just summary guides.
5. **Set up FBAR filing now.** If you'll have any foreign bank account above $10,000, mark the FinCEN filing deadline (April 15 with automatic extension to October 15) on your calendar.
6. **If you were affected by WEP or GPO, verify your benefit amount.** Log in to my Social Security (ssa.gov/myaccount) to confirm the adjustment has been applied.
7. **Keep a US bank account open.** Direct deposit of Social Security and retirement distributions into a US bank, with international transfers handled separately, remains the simplest structure.

Next Steps

The decisions with the largest long-run impact — which country, which custodian, whether to convert to Roth, whether to claim FEIE or FTC — are best made before you leave, not after. A cross-border CPA or an Enrolled Agent who specializes in expat returns typically costs $800–$2,500 per year and is usually worth it once you have foreign-source income or retirement distributions in play. The IRS publishes a free list of Acceptance Agents abroad, and the American Citizens Abroad organization maintains a vetted referral list.

If your move is still theoretical, start by pulling your destination country's tax treaty from the Treasury website and reading Article 17 or 18 (the pension articles). That single document will tell you more about your actual retirement tax outcome than any generic expat guide.