The core rule that surprises new expats is that the US taxes based on citizenship, not residence. A US citizen living in Portugal, Mexico, or anywhere else still files a US tax return every year on worldwide income, and that filing obligation doesn't go away until citizenship is formally renounced, a step almost none of our clients are actually considering. This is fundamentally different from how most other countries tax their citizens, which is one reason it catches new retirees abroad off guard.

Traditional IRA and 401(k) withdrawals remain ordinary taxable income on the federal return no matter where you live, and required minimum distributions still apply on the same schedule, age 73 currently, moving to 75 for those born in 1960 or later under SECURE 2.0. There's no special exemption or deferral available simply because you're living outside the country, and the Foreign Earned Income Exclusion, which shelters up to a set amount of foreign wages from US tax each year, doesn't apply here at all since retirement account withdrawals are unearned income, not earned income from work.

Social Security benefits are taxed the same way abroad as at home: using the provisional income formula that determines whether 0%, up to 50%, or up to 85% of benefits are federally taxable. Living abroad doesn't change this calculation, and the US retains the right to tax Social Security paid to its citizens regardless of where they reside, this is one of the few points where US tax treaties generally don't override domestic law.

The Foreign Tax Credit is the primary tool for avoiding double taxation on income that both the US and your host country tax. It provides a dollar-for-dollar credit against US tax for income tax actually paid to the foreign country on the same income, which works well in high-tax countries (much of Western Europe) but provides less benefit in countries with low or no income tax (parts of the Caribbean, Panama, and others), where there's simply little or no foreign tax to credit against.

Totalization agreements, separate from tax treaties, coordinate Social Security-type taxes and benefit eligibility between the US and 32 partner countries as of 2026, mostly concentrated in Europe with growing coverage in Asia-Pacific and the Americas. Several of the most popular US retiree destinations, Mexico, Costa Rica, Panama, and Thailand among them, have no totalization agreement in place, which mainly affects self-employed expats paying into a foreign social insurance system, less so retirees already drawing US Social Security.

Beyond income tax, retiring abroad brings separate reporting obligations that have nothing to do with how the income is taxed but carry serious penalties if missed: FBAR (FinCEN Form 114) for foreign financial accounts exceeding $10,000 in aggregate, and FATCA reporting (Form 8938) for larger foreign asset holdings. These are disclosure requirements, not additional taxes, but the penalties for failing to file them are substantial and unrelated to whether any additional tax is actually owed.

State tax follows a completely different logic than federal tax for anyone retiring abroad, and it's a separate question worth resolving before the move, not after. A retiree who was domiciled in a state with no income tax, Nevada among them, before moving overseas generally owes no state tax on retirement income while abroad, since there was never a state income tax to begin with. A retiree still domiciled in an income-tax state, having not genuinely established a change of domicile before or during the move abroad, can find that state continuing to claim the right to tax retirement income even after relocating internationally, since simply leaving the country doesn't automatically sever a prior state's tax claim the way it would moving to a different US state.

If you're planning to retire abroad, build your retirement income and Roth conversion plan around the assumption that all US taxes still apply in full, then separately research and budget for whatever the host country's tax system adds on top. Don't assume the move itself creates federal tax savings, it generally doesn't.

Before choosing a destination country, check both its tax treaty status with the US (which affects double-taxation relief) and whether foreign account reporting obligations like FBAR and FATCA will apply to accounts you open there. These logistics matter as much as the headline cost-of-living comparisons most retire-abroad guides focus on.

• Assuming moving abroad reduces or eliminates US federal tax on IRA, 401(k), or Social Security income. It doesn't, the US taxes citizens on worldwide income regardless of residence.
• Trying to apply the Foreign Earned Income Exclusion to retirement account withdrawals. That exclusion only applies to wages and self-employment income from actual work performed abroad.
• Not accounting for the Foreign Tax Credit's limited value in low-tax host countries, where there's little foreign tax to credit against double taxation.
• Missing FBAR or FATCA foreign account reporting requirements, which carry serious penalties independent of whether any additional tax is actually owed.