Most of the loss happens before the money leaves the US
People planning a return to Mexico often assume the tax risk is on the Mexican side. For a lump-sum 401(k) cash-out it's usually the opposite: the biggest bite is US withholding at the source, plus a 10% early-withdrawal penalty if you're under 59½. Together that's why a cash-out commonly loses 30–40% up front.
The two withholding rates — it depends who you are on payday
| Your status when paid | Default US withholding |
|---|---|
| US citizen or green-card holder | 20% |
| Nonresident alien (no treaty claim) | 30% |
The 20% is the mandatory withholding on an eligible rollover distribution paid to a US person; the 30% is the standard §1441 rate on US-source income paid to a nonresident alien. Withholding is a deposit, not your final tax — you reconcile it on a US return (1040 or 1040-NR) and may get some back, or owe more.
The 10% early penalty — this one depends on your age and how you left
On a Traditional 401(k), the IRS adds a 10% early-distribution tax (IRC §72(t)) if you take the money before age 59½. But it's waived in real situations:
- You separated from that employer in the year you turned 55 or older (the "rule of 55," 401(k) only).
- Disability, certain medical costs, and other listed exceptions.
Roth changes the picture entirely
The Mexican side — real, but individual
Once you're a Mexican tax resident, Mexico taxes your worldwide income, so the withdrawal is generally taxable there too — ISR up to 35% — with a foreign tax credit for the US tax you already paid, so you're not taxed twice on the same money. But the exact Mexican amount depends on your total year's income and personal situation. This is genuinely an individual calculation.
The one part nobody should hand-wave: the treaty on a lump sum
You'll read that the US–Mexico tax treaty can lower the 30% for a nonresident who files Form W-8BEN. For a periodic pension that's often true. For a one-time lump-sum cash-out it's genuinely unsettled — sources disagree, and many payers withhold 30% regardless, leaving you to reclaim any excess on a 1040-NR. We don't publish a blended "treaty rate" number because an honest one doesn't exist for this case.