Publications

Retiring outside the state or country

Posted on July 18, 2024

Moving to another state

The one thing to keep in mind if you plan to live outside Washington, is state income tax. Your plan contributions were pretax, so you will have income tax when you receive your retirement payments. Washington doesn’t have state income tax, and we don’t withhold state income tax for any payments issued outside of the Deferred Compensation Program (DCP). This means, if you live in a state outside Washington, you will be responsible for paying any pension income taxes owed to that state. This is the main thing to know if you are considering leaving Washington. The rest of this article is for those of you who are planning to move outside the United States.

Planning to live outside the United States in retirement?

If you’re thinking about living outside the US in retirement, you’ll want to consider this relocation during your retirement planning.

Security risks are high in financial as well as technical industries. And modern prevention measures are often extreme, especially when it comes to foreign transactions. This extra security can present a challenge for collecting your retirement income from outside the US.

How do DRS customers receive their pension payments if they live outside the US? The answer is, it’s complicated.

What about direct deposit?

For some countries, direct deposit payments to your bank account are possible. If your bank has a branch in the US as well as the destination country, we have seen successful direct deposits in many cases. There are several banks that operate in the US and abroad. We require a 9 digit US routing number to implement the transfer. Many foreign banks use routing systems that are incompatible with US banking and DRS systems cannot process these. Additionally, we cannot guarantee the bank will cooperate.

What about paper checks?

In most cases, paper checks are the solution for international customers. DRS mails paper checks to foreign customers. However, some countries will not accept foreign checks due to their own advanced security measures. Australia and Norway are two countries with such restrictions.

Accessing DRS payments in a foreign country can require some creative solutions. Some customers have success using prepaid debit cards from a third-party vendor. But the fees on these are high. DRS is not able to offer advice for how you can receive these payments outside of traditional methods.

We recognize that foreign payments are challenging and everyone’s situation is unique. Washington is considering future solutions for successful international pension payments, but right now, it’s complicated.

Relocating outside the US when you retire? Here’s what to do.

Talk to your bank. The most important step you can take is to have a conversation with your financial institution(s)—both foreign and US, about your relocation as well as options for receiving payment. It’s important to be honest about your situation. For customers straddling two countries, we’ve seen US banks close customer accounts when the physical address is foreign, simply as a security measure.

Talk to DRS. Contact DRS and let us know you are moving, preferably before we start issuing your payments. There are different form and reporting requirements for international customer payments. Instead of an I9 for tax withholding, non-citizens with an international address need to complete a W8. Instead of a 1099 tax report, you’ll receive a 1042 report each year. If you are a US citizen living anywhere in the world, you will be responsible for paying federal taxes on your benefit payments. You will also be responsible for paying any income taxes required by the country in which you reside.

If you have a Roth account, such as Washington’s DCP Roth option, you might wonder whether foreign countries honor Roth income as tax-free. Definitely check out the rules and regulations for the destination country. In many cases, countries will tax your worldwide income whether or not it is already-taxed Roth dollars.

Bottom line – If you are planning to move out of country in retirement, it’s important to communicate and to explore your options.