Leaving the US With a 401(k) and IRAs

When people leave the United States, the 401(k) is often the largest thing they own here, and the most common decision about it is the most expensive one: cashing it out on the way to the airport. This chapter explains what happens to a 401(k) or IRA when you leave, what a cash-out really costs a nonresident, the alternatives of leaving it invested or rolling it over, and the paperwork that decides how much tax you pay in the end.

You do not have to do anything

Leaving the country and leaving the job do not force you to take the money. A 401(k) usually stays where it is after you leave the employer, invested as before, and an IRA stays open. The money keeps growing without US tax until you take it out. You have four broad choices, and they can be combined:

1. Leave it in the employer's plan. Simple, and the plan keeps its protections and its exception to the early-withdrawal tax for people who leave a job in or after the year they turn 55. Check the plan's rules: plans may pay out or roll over small balances without your consent, and some limit what former employees can do.
2. Roll it into an IRA before you leave. A direct rollover, from the plan straight to the IRA, has no tax and no withholding. An IRA usually offers a wider choice of funds at lower cost and puts all your accounts in one place. Do it while you still have a US address: some US brokerages restrict or close accounts for people who live abroad, and rules differ by firm and by country, so ask the firm before you go.
3. Take withdrawals over time. Draw from the account in retirement, in whatever country you live in, under the rules below.
4. Cash it out. Take everything at once, now or soon after you leave.

What a cash-out really costs

A traditional 401(k) or IRA paid to a nonresident is subject to US tax withheld at a default 30%, unless you have claimed a lower treaty rate on Form W-8BEN. If you are under 59½, an additional 10% tax is also due, with your nonresident return; leaving the country does not remove it. Before any refund, that is 40% of the balance gone. If you take the money while you are still a US resident instead, the plan withholds 20% and the whole payout is added to that year's income and taxed at your ordinary rates, plus state tax, plus the same additional 10% tax before 59½.

The bigger cost is what the money would have become. A balance left invested keeps compounding; a cashed-out balance starts again from 60% of the amount.

Left invested at 6.0% a year, a balance of $100,000 grows to about $429,187 over 25 years. Cashed out before 59½ at the default rates, the $60,000 left, reinvested at the same return, grows to about $257,512. Part of the 30% may come back when you file (see below), and money invested at home may be taxed differently, so treat the gap as an order of magnitude, not a precise figure. Even so, the up-front loss is rarely made up later, and money reinvested at home usually loses the tax-free growth too.

The 401(k) withdrawal when leaving the US calculator shows the withholding, the additional tax and what reaches you for your own balance, age and treaty rate.

How the tax is actually settled

Withholding is a deposit against the tax, not the final bill. IRS Publication 519 explains the rule that decides the final amount. Retirement distributions attributable to work you did in the US after 1986 are effectively connected income to the extent they come from contributions, and that part is taxed at the graduated rates on Form 1040-NR, without a standard deduction. The rest is taxed at 30%, or a lower treaty rate. You can ask the payer to withhold at graduated rates on the part from US services by giving it Form W-8BEN or Form 8233 before the payment.

What that means in practice:

• Smaller withdrawals spread over years can cost less than one large one, because graduated rates start low. A nonresident who takes moderate amounts each year may owe less than the 30% withheld and get the difference back.
• You will need to file. A Form 1040-NR is how you report the income, claim treaty benefits and get any refund. The payer sends Form 1042-S (or a Form 1099-R) showing what was paid and withheld.
• A treaty can change everything. Many treaties have a pensions article. To use it, give the payer Form W-8BEN with the treaty claim before payment; some positions also need Form 8833 attached to the return. Read the article for your country on the IRS treaty page.
• Your new country taxes it too, probably. Most countries tax residents on worldwide income. Whether you get credit for the US tax depends on that country's law and the treaty.

The rules that keep running after you leave

Required minimum distributions. Traditional accounts must start paying out a minimum each year from age 73 (75 for people born in 1960 or later), wherever you live. Plan for those payments and their withholding.

Roth accounts. Qualified withdrawals from a Roth IRA or Roth 401(k) owe no US tax and are not withheld on, which is why chapter 4 matters. A Roth 401(k) has no lifetime minimum distributions under rules in force since 2024.

Beneficiaries. Update the beneficiaries on every account before you leave, and keep the plan's contact details somewhere your family can find them. Accounts left behind are easy to lose track of over decades.

Your address and identity. Keep the plan and the IRA informed of your foreign address, keep online access working (US phone numbers for two-factor login are a common problem), and keep a record of your Social Security number.

Leaving: the year itself and the departure permit

The year you leave is usually a dual-status year: resident for part of it, nonresident for the rest. Publication 519, chapter 6, explains how to file it, and it has quirks, including no standard deduction and no joint return unless you make a special choice. It is often a year when withdrawals or conversions are taxed differently than you expect, so plan any large transaction with the dual-status rules in view.

Publication 519, chapter 11, also says most departing aliens must obtain a certificate of compliance, often called a sailing or departure permit, by filing Form 1040-C or Form 2063 before they leave. Several categories are exempt, including many students and short-term visitors. Check the chapter's list early: the permit is requested in person at an IRS Taxpayer Assistance Center, by appointment, at least two weeks before you leave, so it is not something to discover the week you fly.