Leaving the United States: A Practical Guide to 401(k)s

Introduction - Why Leaving the U.S. Requires a Fresh Look at Your Financial Structure

Every year, thousands of U.S. citizens, green-card holders, and long-term visa holders relocate from the United States. Some return to their home country, while others move to a new location entirely. When leaving the U.S., an important question arises:

“What happens to my 401(k), IRA, investments, and U.S. tax obligations once I move abroad?”

Relocating outside the United States changes:

• tax residency,
• access to financial institutions,
• long-term retirement planning,
• investment platform availability,
• pension distribution rules,
• foreign reporting requirements,
• estate tax considerations.

Foreign nationals, U.S. citizens, and former U.S. residents all face different rules depending on:

• whether they become non-resident aliens,
• where they choose to live,
• whether their new country has a tax treaty with the U.S.,
• how they plan to use their U.S. accounts,
• and whether they retain ties to the U.S.

This guide provides a neutral, factual, SEC-compliant overview of what individuals may consider when departing the United States.

This is not tax, legal, or investment advice. Suitability depends entirely on individual circumstances.

Section 1 - Understanding Your Tax Status After Leaving the United States

The first consideration when relocating is determining your U.S. tax status.

1. U.S. Citizens

U.S. citizens remain subject to U.S. taxation on worldwide income even after leaving the country.

They continue to file:

• annual U.S. tax returns,
• foreign account reporting (if applicable),
• FBAR/FATCA (depending on thresholds).

Citizenship, not residency, drives taxation.

2. Green Card Holders

Green-card holders remain U.S. tax residents unless they:

• voluntarily surrender their green card, or
• are treated as non-residents under a treaty tie-breaker (which may affect immigration status), or
• meet specific criteria under expatriation rules.

3. Visa Holders / Former Residents

Once a foreign national leaves the U.S. and does not meet the Substantial Presence Test, they generally become non-resident aliens (NRAs) for U.S. tax purposes.

NRAs are typically taxed only on:

• U.S.-source income,
• effectively connected income (ECI),
• U.S. investment income (with withholding),
• U.S.-situs assets for estate tax purposes.

4. Part-Year Residency

The year of departure may require:

• dual-status tax filings,
• split-year treatment,
• careful documentation of residency periods.

Section 2 - What Happens to Your 401(k) When You Leave the U.S.?

Your 401(k) remains a U.S. retirement account governed by U.S. rules, regardless of where you live.

Moving abroad does not:

• close your 401(k),
• force liquidation,
• trigger penalties,
• change tax deferral,
• restrict investment growth under U.S. law.

However, there are practical considerations.

1. You Can Keep Your 401(k) After Leaving the U.S.

Most individuals retain their 401(k) after moving abroad.

2. You Cannot Contribute to a Former Employer’s 401(k)

Contributions end when employment ends.

This applies globally.

3. Some Providers Restrict Foreign Residency

Although a 401(k) stays intact, some record keepers may:

• limit online access,
• restrict account changes,
• require a U.S. address,
• request U.S. phone-based verification.

These are provider policies, not IRS rules.

4. Rollover Options May Still Apply

Individuals may evaluate whether:

• keeping the 401(k) is appropriate,
• transferring to a new employer 401(k) is possible,
• rolling into a Traditional IRA is suitable (reviewing IRC rules),
• Roth conversions may be evaluated depending on circumstances.

Conflict Disclosure:

Skybound USA may receive advisory fees when assets are managed under advisory programs.

Individuals should evaluate all available options, including leaving assets in existing plans.

Section 3 - What Happens to Your IRA When You Leave the U.S.?

IRAs are U.S. retirement accounts governed by U.S. tax law.

You may keep:

• Traditional IRAs
• Roth IRAs
• SEP IRAs
• SIMPLE IRAs

after leaving the United States.

1. You Can Maintain IRAs Abroad

Foreign residency does not eliminate your ability to hold an IRA.

2. Custodian Access Rules Vary

Some custodians:

• allow full servicing abroad,
• allow servicing only in certain countries,
• require a U.S. mailing address,
• limit certain account actions.

This varies widely.

3. Contribution Rules Depend on U.S.-Taxable Earned Income

To contribute to an IRA while abroad:

• you must have U.S.-taxable earned income,
• FEIE-excluded income may not count as eligible compensation,
• MAGI limits apply for Roth contributions.

4. Roth IRA Rules Remain Under U.S. Law

Qualified withdrawals remain U.S.-tax-free.

Local tax treatment depends on the country of residence.

Section 4 - U.S. Brokerage Accounts and Investments After Leaving the U.S.

Foreign residency can affect servicing of U.S. brokerage accounts.

Some institutions:

• allow continued investing,
• restrict new purchases,
• allow only liquidations,
• require accounts to move to “restricted status”,
• require updates to address forms.

Restrictions vary by:

• platform,
• country of residence,
• internal policies,
• licensing requirements.

Section 5 - What Happens to U.S. Mutual Funds and ETFs When Living Abroad?

Some foreign regulators (e.g., EU) restrict certain U.S. products for residents of their jurisdictions.

Section 6 - U.S. Taxation After Leaving the United States

U.S. citizens:

Taxed on worldwide income regardless of residence.

Green-card holders:

Taxed until they formally cease residency or meet treaty / expatriation rules.

Non-residents:

Taxed only on:

• U.S.-source income
• effectively connected income (ECI)
• U.S. investment income (withholding)
• U.S.-situs assets (estate tax)

Understanding classification is essential.

Section 7 - Common Income Types After Leaving the U.S.

1. U.S. Dividends

NRAs typically pay:

• 30% withholding,
• unless reduced by treaty.

2. Capital Gains From U.S. Stocks

NRAs generally do not pay U.S. capital gains tax unless:

• gains relate to U.S. real property (FIRPTA),
• trading constitutes a U.S. trade or business.

3. U.S. Rental Income

Options include:

• flat withholding
• tax return to elect net taxation

4. Pension and Retirement Income

IRS rules continue to apply.

Treaty rules vary by country.

5. Social Security

Not all countries tax U.S. Social Security;

treaties differ significantly.

Section 8 - Foreign Pensions and Savings After Leaving the U.S.

Foreign pensions are governed by:

• home-country rules,
• local tax systems,
• U.S. rules if you remain a citizen or green-card holder.

Considerations include:

Section 9 - PFIC Rules for Global Investors Returning Home

If an individual becomes a non-resident alien:

• PFIC rules no longer apply going forward (but may apply while resident in the U.S.).

If the individual remains a U.S. taxpayer:

• PFIC rules may continue to apply to foreign pooled funds.

Section 10 - Leaving the U.S. and Selling Property or Businesses

Foreign nationals and former residents may still:

• own real estate in the U.S.
• hold U.S. businesses
• maintain partnership interests

FIRPTA rules apply to U.S. real property dispositions.

Income tax rules vary based on residency and presence of a U.S. trade or business.

Section 11 - U.S. Estate Tax After Leaving the United States

Estate tax rules depend on:

• domicile
• U.S.-situs assets
• treaty relief
• asset type
• entity structure

Key points:

• U.S. estate tax applies to U.S.-situs assets for NRAs
• the filing threshold is generally $60,000
• citizens and green-card holders have separate lifetime exemption rules

Residency and nationality determine exposure.

Section 12 - Double Taxation Considerations After Moving Abroad

Double taxation may arise when:

• the new country taxes foreign pension income
• the U.S. taxes worldwide income (for citizens or green-card holders)
• treaty rules are not applied
• foreign tax credits cannot offset U.S. tax

Individuals often review:

• treaty provisions
• local country tax structure
• potential FTC eligibility
• timing of residency changes

This is highly jurisdiction-specific.

Section 13 - Foreign Bank Accounts Once You Leave the U.S.

U.S. citizens and green-card holders must still report:

• FBAR (FinCEN 114)
• FATCA Form 8938
• foreign income earned in those accounts

Non-residents (NRAs) do not file FBAR/FATCA unless they retain U.S. tax residency.

Section 14 - Hypothetical Examples (Illustrative Only)

These examples do not represent actual clients or outcomes.

Example 1 - U.S. Citizen Retiring Abroad

Profile:

• moves to a treaty country
• keeps 401(k), IRA, U.S. investments

General considerations (high-level):

• worldwide income remains taxable
• treaty may influence treatment
• local tax rules apply

Example 2 - Foreign National Returning Home After Work Assignment

Profile:

• becomes NRA after leaving
• keeps 401(k) and U.S. investments

General considerations:

• U.S. taxes U.S.-source income
• withholding applies to dividends
• capital gains generally not taxed for NRAs

Example 3 - Former Green-Card Holder

Profile:

• returned home
• still holds green card

General considerations:

• may remain U.S. tax resident
• expatriation rules may apply
• planning depends on residency status

Example 4 - Globally Mobile Household

Profile:

• plans to live in multiple countries over 15–20 years

General considerations:

• tax treatment varies by country
• retirement account consistency matters
• multi-currency planning relevant

Section 15 - Practical Checklist Before Leaving the United States

Section 16 - How Skybound Wealth Management USA Supports Individuals Leaving the U.S.

Skybound USA assists individuals with:

• navigating cross-border retirement considerations,
• understanding how U.S. retirement accounts behave abroad,
• PFIC-aware investment planning,
• coordinating with tax professionals,
• long-term multi-currency planning via MoneyMap,
• aligning global assets with future residency,
• evaluating U.S.-situs asset considerations as non-residents.

Conflict Disclosure:

Skybound USA may receive advisory fees when assets are managed under advisory programs.

Individuals should evaluate all available options before making decisions.

Next Steps

If you are planning to leave the United States and would like to understand how your retirement accounts, investments, and tax status may interact with your new country of residence, you may schedule a discussion with Skybound Wealth Management USA.