5 Vital tax Tips to Consider Before Retiring Abroad
When deciding to retire abroad, the factors most often considered include political stability, weather, quality of life and affordable healthcare. These are certainly important, but you also need to figure out a way to pay for this glorious next stage of your life. You’ve saved for retirement for years – don’t take your eye off the ball now that you’re finally there. Hint – not all countries are equal with regards to taxing American retirees. Let’s look at some key tax factors to consider when planning to retire abroad.
1. Will my U.S. pension be taxed?
A. Distributions from a U.S. employer pension and from Traditional IRA’s will remain fully taxable by the IRS regardless of the country you reside in. The good news – pension distributions will be exempt from U.S. state taxation. If you received those distributions while living in the US, then state tax rate would depend on the tax rules of the state where you live upon retirement, not by the state where you earned it.
I.E., if you earned pension in NY and moved to CA, you would pay state tax on pension in CA, based on your CA tax bracket. If you earned pension in CA and moved to FL your pension would not be taxable because Florida does not levy a state tax. Same exemption from the state taxation will take place if you live abroad. However, pension may be taxable by your new country of residency. Please consult a tax specialist in your new country of residency.
If your U.S. pension is taxed by the IRS and by the country where you live you will be protected from double taxation through the foreign tax credit mechanism.
B. Distributions from ROTH IRA will remain non-taxable by the IRS and by your new country of residency. ROTH IRA was funded with after-tax money and therefore will never be taxed again.
Whole Story at TFE.