Updated August 6, 2026. Quick answer: moving abroad changes almost nothing about how your 401(k) and IRA withdrawals are taxed by the United States. You still file, the money is still ordinary income, and the foreign earned income exclusion does not touch it — that is written into the definition, not left to interpretation. What can change is the state’s claim, and that changes in your favour.
You are still a US taxpayer, and the regulation says so plainly
26 C.F.R. §1.1-1(b): “In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States.”
So a distribution is taxed the way it would have been at home: ordinary income for a traditional account, qualified distributions from a Roth still tax-free, the early withdrawal rules unchanged. Living abroad is not a tax event for these accounts and does not create one.
Green card holders should read that sentence twice. Residency for tax purposes is sticky by design: “[r]esident status is deemed to continue unless it is rescinded or administratively or judicially determined to have been abandoned” (26 C.F.R. §301.7701(b)-1). Leaving the country does not end it by itself.
The correction: the exclusion is defined not to reach you
The most common expectation about this is wrong, and not by a matter of degree. IRC §911(b)(1)(B)(i) states that “[t]he foreign earned income for an individual shall not include amounts — (i) received as a pension or annuity”.
The foreign earned income exclusion excludes foreign earned income, and a pension or retirement-account distribution is carved out of that definition by the statute itself. There is no threshold to stay under and no election to make. The same structural point defeats a related hope — the exclusion does not cover investment income either, for a related but distinct reason worth understanding separately.
Foreign tax paid on the same money is a credit question, not an exclusion question, and the credit has its own hard edge: it cannot offset the net investment income tax.
The 30% withholding scare, and who it is actually for
People read about 30% withholding on payments to people overseas and assume it applies to them. It is scoped to nonresident aliens. IRC §1441(a) directs withholding agents to withhold 30% from specified income “of any nonresident alien individual or of any foreign partnership”. A US citizen living abroad is not a nonresident alien and never becomes one by living somewhere else.
The practical form of this is the paperwork your custodian asks for, and getting it wrong is the actual risk:
- A US citizen or resident gives a Form W-9, wherever they live. It certifies you are a US person.
- A nonresident alien gives a Form W-8BEN, which certifies foreign status and is also the route to a reduced treaty rate.
A US citizen who signs a W-8BEN is falsely certifying foreign status. If a foreign address on your account prompts a custodian to send you a W-8BEN, that is a question to answer rather than a form to sign.
Treaties can reduce the 30% rate for those it applies to. The rate is treaty-by-treaty and we do not summarise treaties anywhere on this site, because a summary that is wrong for your country is worse than none.
The part that improves: the federal shield on state tax
This is the genuinely good news and it is a federal statute, not a state concession. 4 U.S.C. §114(a): “No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State”.
Once you are genuinely no longer a resident or domiciliary, your former state cannot reach your retirement income — not the 401(k), not the IRA, not the 403(b), not the 457, not military retired pay. The catch is in the first clause: it protects a non-domiciliary, and a state that still considers you domiciled is not constrained by it at all. That is why breaking domicile is the first item on the checklist and why it has its own page.
One qualifier that gets dropped constantly. For several of the categories the section covers, the protection attaches to income paid as a series of substantially equal periodic payments over life or a term of at least ten years, or under specific plan-termination and excess-benefit conditions. It is not a blanket exemption for any lump sum you care to take. If your plan is to move abroad and empty an account in one go, that is exactly the case where the qualifier matters and where the general rule may not do what you expect.
Sources
26 C.F.R. §1.1-1(b), 26 C.F.R. §301.7701(b)-1, IRC §§911(b)(1)(B)(i), 1441(a) and 871(a)(1)(A), and 4 U.S.C. §114, all read at the Legal Information Institute on 2026-08-06; the Form W-9 and Form W-8BEN descriptions from their IRS form pages, same date.
Honest gap: we set out to cite the provision that sources a pension distribution to the United States for a nonresident alien and could not verify one to our standard — §861(a) has no pension paragraph, and the regulation that mentions pensions does so inside a narrow de minimis exception. §871(a)(1)(A) does list annuities as taxable US-source income to a nonresident alien, which is why no sourcing citation for pensions appears above. If you are a nonresident alien drawing on a US plan, that is a specialist question and we have not answered it here.
See methodology and corrections. General information about published law, not tax or legal advice. No affiliate links, nothing sold.