Cashing out your 401(k) to move back to Mexico — what you'd actually keep
The trap: a lump-sum cash-out can lose 30–40% before it ever leaves the US — nonresident withholding plus the early-withdrawal penalty. See your estimated cash in hand, and the treaty and Mexico caveats you need to know before you touch it.
Your withdrawal
Where the money goes
Email me the breakdown + the questions to ask a cross-border CPA
Worked examples
Age 47, moving back to Guadalajara, $78,500 balance
Estimated cash in hand: $54,950
Of your $78,500, you'd have about $54,950 in hand after US withholding and the early-withdrawal penalty — before any Mexican tax.
⚠ That's about 30% gone before the money leaves the US — the 10% early-withdrawal penalty stacks on top of withholding under 59½.
ℹ️ If you qualify as a nonresident alien and file Form W-8BEN with the plan, a US–Mexico treaty rate MAY reduce withholding — but for a one-time lump-sum cash-out this is unsettled and many payers withhold 30% anyway. Over-withholding is reclaimed on Form 1040-NR.
ℹ️ As a Mexican tax resident this withdrawal is generally taxable in Mexico too (ISR up to 35%), with a foreign tax credit to avoid double tax. The exact Mexican amount is individual — see a cross-border CPA.
⚠ Before you withdraw: a cross-border 401(k)/IRA cash-out involves disputed treaty treatment and Mexican tax on top of this US withholding. Get a US–Mexico cross-border CPA — this figure is the US-side estimate only.
Where the money goes
- Amount cashed out: $78,500
- US withholding (20%): −$15,700
- Early-withdrawal penalty (10%, under 59½): −$7,850
- Estimated cash in hand: $54,950
Age 57, left employer at 55, $310k as nonresident
Estimated cash in hand: $217,000
Of your $310,000, you'd have about $217,000 in hand after US withholding — before any Mexican tax.
⚠ That's about 30% gone before the money leaves the US.
ℹ️ If you qualify as a nonresident alien and file Form W-8BEN with the plan, a US–Mexico treaty rate MAY reduce withholding — but for a one-time lump-sum cash-out this is unsettled and many payers withhold 30% anyway. Over-withholding is reclaimed on Form 1040-NR.
ℹ️ As a Mexican tax resident this withdrawal is generally taxable in Mexico too (ISR up to 35%), with a foreign tax credit to avoid double tax. The exact Mexican amount is individual — see a cross-border CPA.
⚠ Before you withdraw: a cross-border 401(k)/IRA cash-out involves disputed treaty treatment and Mexican tax on top of this US withholding. Get a US–Mexico cross-border CPA — this figure is the US-side estimate only.
Where the money goes
- Amount cashed out: $310,000
- US withholding (30%): −$93,000
- Early-withdrawal penalty: $0 — waived (separated at 55+ / exception)
- Estimated cash in hand: $217,000
Retiree, 62, qualified Roth — keeps essentially all of it
Estimated cash in hand: $168,000
Qualified Roth withdrawals are generally tax-free and penalty-free — you'd keep essentially all of it. Confirm the 5-year rule and age 59½.
⚠ Before you withdraw: a cross-border 401(k)/IRA cash-out involves disputed treaty treatment and Mexican tax on top of this US withholding. Get a US–Mexico cross-border CPA — this figure is the US-side estimate only.
Where the money goes
- Amount cashed out: $168,000
- US withholding: $0 — qualified Roth
- Early-withdrawal penalty: $0
- Estimated cash in hand: $168,000
Examples are recomputed whenever the underlying rates or data change; the date above is the last recompute.
Methodology & data sources
When a US retirement plan pays a distribution to a person abroad, the US default withholding is 30% for a nonresident alien (IRC §1441) versus the 20% mandatory withholding on a US person's eligible lump sum. Separately, a 10% early-withdrawal penalty (IRC §72(t)) applies to a Traditional-account distribution before age 59½, unless an exception applies (you separated from that employer at 55+ for a 401(k), disability, and others). Qualified Roth withdrawals are generally tax-free. Withholding is not your final tax — you reconcile at filing (Form 1040 or, for a nonresident, Form 1040-NR), and could owe more or get some back. The US–Mexico treaty (Art. 19) can shift taxing rights on a periodic pension, claimed via Form W-8BEN, but its application to a one-time lump-sum cash-out is unsettled — so we do not compute a treaty rate. As a Mexican tax resident the withdrawal is generally also taxable in Mexico (ISR up to 35%), relieved by a foreign tax credit; the Mexican amount is individual. We deliberately compute only the US-side shrinkage and flag the rest for a cross-border CPA.
Sources: IRS — distributions to foreign persons (30%) · IRS — §72(t) exceptions · US–Mexico treaty (Art. 19)
Frequently asked questions
How much is withheld if I cash out as a nonresident?
The US default is 30% (vs 20% for a US person), plus a 10% penalty under 59½ on a Traditional account — so under 59½ you can lose about 40% up front.
Does the US–Mexico treaty lower the rate?
Maybe for a periodic pension (via W-8BEN), but for a one-time lump-sum cash-out it's unsettled and many payers withhold 30% anyway. See a cross-border CPA.
Is a Roth withdrawal taxed the same?
No — qualified Roth withdrawals are generally tax-free and penalty-free. This shrinkage applies to Traditional accounts.
Is the withholding my final tax?
No. It's withheld at the source; you reconcile at filing (Form 1040 or 1040-NR) and may owe more or get a refund.