If you are an American moving abroad with a 401(k), you have three basic choices depending on your individual circumstances. You can leave it where it is. You can move it, usually into an IRA. Or you can cash it in.
Each option suits different people. This article explains the main considerations to help you understand the options before seeking advice tailored to your circumstances.
First, a quick refresher
A 401(k) is a US workplace retirement plan. Money goes in through your employer's payroll, grows without US tax along the way, and is usually taxed as income when you take it out in retirement. Some plans also offer a Roth version, where you pay tax upfront and qualified withdrawals are tax-free.
Moving abroad does not close a 401(k). The IRS does not require it, and the account stays in the United States. So the question is not whether you can keep it, but whether keeping it is the best choice.
Option 1: Keep it
What it means: you leave your money in your former employer's plan. It stays invested, and the US tax treatment carries on as before. However, its tax treatment in your country of residence may differ.
Factors to consider:
- Whether your plan allows former employees to stay in.
- Whether the investment and overall costs remain appropriate for your circumstances.
- Whether the plan provider lets you manage the account from a foreign address.
- Your retirement plans, investment timeframe and access needs.
What to watch out for:
- New contributions generally stop once you are no longer paid through that employer's US payroll.
- Some providers restrict what you can do once your address is outside the US.
- Online access can be hard to keep if logins depend on a US phone number.
- Small balances can sometimes be paid out automatically under standard plan rules, so check whether that applies to you.
Option 2: Move it
What it means: you roll the money over into an Individual Retirement Account (IRA). Done correctly, as a direct rollover from one account to another, this generally is not a taxable event in the US but tax treatment may differ in your country of residence. Traditional 401(k) money usually goes into a traditional IRA, and Roth money into a Roth IRA .
Factors to consider:
- Whether an IRA offers investment choices that are appropriate for your circumstances.
- Whether consolidating eligible retirement accounts could simplify administration, taking account of any benefits or protections you may lose.
- Whether the IRA provider accepts and continues to service customers in your country of residence.
What to watch out for:
- Many US providers do not open new accounts for people living outside the US. If you plan to roll over, doing it before you move can keep more doors open.
- Some protections and features of workplace plans do not carry over to IRAs, so you may need to compare the two before moving.
- Moving a US retirement account into a foreign pension scheme is a very different matter. It is usually treated as a taxable withdrawal by the US, and may be subject to additional requirements.
Option 3: Cash it in
What it means: you withdraw the money, either as a lump sum or in stages.
When it might come up:
- You have reached the age at which withdrawals are allowed without a penalty, and you need the money.
- You have a specific, well-planned reason for taking it now, with the tax cost understood in both countries.
What to watch out for:
- Withdrawals from a traditional 401(k) are generally taxed as income in the US, even if you live abroad.
- Withdrawals before a certain age usually carry an extra early withdrawal penalty on top of income tax, unless an exception applies.
- Your new country may tax the withdrawal too. Tax agreements and credits can reduce double taxation, but they do not always remove it, and each country may treat the money differently.
- A large lump sum can push you into a higher tax bracket in a single year.
Taking withdrawals can have significant tax consequences and affect your long-term retirement savings. Moving abroad does not, by itself, determine whether this option is appropriate; this depends on your circumstances, access needs and the applicable tax rules.
The part that applies whichever option you choose
Once you live abroad, two countries care about your retirement savings. Your new country may respect the tax-deferred status of a US account under its tax agreement with the US, or it may tax it in ways the US does not. The same 401(k) can be perfectly efficient in one country and much less so in the next.
That is why the "keep, move or cash" decision is rarely just about the account itself. It is about your individual circumstances including where you live now, where you might retire, and how both tax systems will treat the money when you eventually take it out.
The short version
| Keep it | Move it | Cash it in | |
|---|---|---|---|
| US tax now | None | None, if done as a direct rollover | Income tax, plus a possible early withdrawal penalty |
| Effort | Low | Medium | Low |
| Main risk | Provider restrictions from abroad | Finding a provider that serves expats | Tax cost in one or both countries |
| Often suits | People happy with their plan | People wanting choice and simplicity | People with a specific, planned need |
At SJB Global, our advisers are expats too. We can help Americans abroad work out what to do with US retirement accounts, whether that means keeping them where they are or finding a better home for them. Any advice would depend on your circumstances and the relevant adviser's authorisation to assist you in your country of residence. If you would like to talk through your situation, you can book an obligation-free call with one of our advisers.
