Mexico and a US annuity: how a resident retiree is taxed, what the treaty does, and a $500,000 example

Written by Hans Goldstein, EA, licensed insurance agent · CA 4273294
Admitted to practice before the IRS
Updated October 2026

How Mexico taxes a resident’s annuity

Once you are a Mexican tax resident, Mexico taxes your worldwide income, whatever your nationality (LISR art. 1, fr. I; art. 90; PwC, checked 18 Oct 2026). Tax residence follows where your home is, or your center of vital interests if you have homes in both countries (PwC, checked 18 Oct 2026). Holding a residence card does not by itself make you a tax resident. The 2026 resident rate table runs from 1.92% to 35% (PwC, checked 18 Oct 2026).

I could not find a Mexican rule written for a life annuity bought from a US insurer, and I found no published ruling from the tax authority. So I show the three outcomes a Mexican adviser would weigh, and I do not pick one for you:

• Exempt. LISR art. 93, fraction XXI exempts amounts that “instituciones de seguros” pay on a policy whose insured risk is survival, if the insured is at least 60, at least five years have passed since the policy began, and the insured paid the premium (LISR art. 93, fr. XXI, checked 18 Oct 2026). Whether a US insurer counts as an “institución de seguros” under that article is not settled. The text I read is the version posted by the Cámara de Diputados, current to the April 2024 reform, so ask your adviser to check for later changes.
• Gain share only. LISR art. 133 treats what an insurer pays on early withdrawals, or on a survival policy that misses the art. 93 test, as interest: the payment minus inflation-adjusted premiums (net of the death cover) is the taxable “interés real” (LISR art. 133, checked 18 Oct 2026). That is the same idea as the US exclusion ratio, but it is written for policies with a surrender value and for “instituciones de seguros.”
• Whole check. If neither fits, the check is ordinary income of a resident under the general rule of art. 90, taxed on the full amount.

The pension exemption in art. 93, fraction IV does not help: it covers retirement payments from Mexican social security accounts up to 15 times the daily minimum wage, not a policy bought from a US insurer (LISR art. 93, fr. IV, checked 18 Oct 2026). The Mexico temporary residency page covers the visa side.

SPIA, DIA and MYGA

A SPIA and a DIA that has started paying are the same case in Mexico: a stream of payments from a US insurer, with the three outcomes above. A multi-year guaranteed annuity (MYGA) or a deferred annuity that is still accumulating is a different question. The US taxes the gain when you withdraw it (IRC 72(e)), not while it grows. I found no published rule on whether a resident is taxed on the build-up of a foreign annuity or only on withdrawals; art. 133 points to withdrawals, but it is written in terms of “instituciones de seguros,” so it may not reach a US contract. That is not settled, so ask a Mexican adviser before you move with a large deferred contract.

Treaty: Article 19 and Article 24(4)

Article 19(2) of the US-Mexico treaty says annuities derived by a resident of one country “shall be taxable only in that State,” so a US insurer’s payments to a Mexican resident are taxed by Mexico, not by the US as the source country (treaty Art. 19(2), checked 18 Oct 2026). The treaty defines “annuities” as “a stated sum paid periodically at stated times during a specified number of years,” with no word about life. Whether a life-only SPIA fits that definition is for your adviser, and I do not rely on it.

Article 1(3) lets the US tax its citizens as if the treaty did not exist, and Article 19(2) is not among the exceptions in Article 1(4) (treaty Art. 1(3) and 1(4), checked 18 Oct 2026). That is why the US still taxes you. Article 24(4) is the relief: Mexico credits only US tax the US could impose apart from citizenship, which is zero here, and for a US citizen resident in Mexico the US treats the income as arising in Mexico “to the extent necessary to avoid double taxation” so the Mexican tax can be credited on your US return (Art. 24(4)(a) to (c), treaty Art. 24, checked 18 Oct 2026).

Who taxes first, and does it cancel out?

Mexico is the residence country and taxes first. The US taxes only the gain share ($10,000 in the example), and under Article 24(4) the Mexican tax is credited against that US tax. The result is about the higher of the two taxes, not the sum. If Mexico taxes only a small share, the US tax dominates. If Mexico taxes the whole check, Mexico dominates and the US tax is mostly credited away. Credit mechanics on Form 1116 have limits, so a US preparer who handles foreign credits should run it.

Wealth tax, inheritance and exit

Mexico has no net wealth tax and no specific inheritance, estate or gift tax. An inheritance received by a Mexican resident is exempt from income tax (PwC, checked 18 Oct 2026). Your annuity is in no wealth base. I found no exit tax on individuals in PwC’s Mexico summary, which asks you to file a notice of change of tax residence 15 days before you leave (PwC, checked 18 Oct 2026); I have not read the tax code on this, so confirm with your adviser. US tax on you as a citizen stays wherever you live.

Refund or death benefit

A refund feature cuts the check by roughly 5% in my model and pays something to heirs if you die early. Mexico levies no inheritance tax, and an inheritance to a resident is exempt from income tax (PwC, checked 18 Oct 2026). Art. 93, fraction XXI also exempts what an insurer pays a beneficiary when the insured risk occurs, but only for an “institución de seguros,” so I would not assume a US contract qualifies (LISR art. 93, fr. XXI, checked 18 Oct 2026). Whether Mexico treats a cash refund as return of capital is not settled. On the US side the refund feature lowers your investment in the contract by its actuarial value, which shrinks the exclusion (IRC 72(c)(2); IRS Pub 939, checked 18 Oct 2026).

Dollar and peso risk

The annuity pays dollars and your costs are in pesos. The Federal Reserve H.10 series shows pesos per dollar from 9.92 (5 Aug 2008) to 25.13 (24 Mar 2020) over the 20 years to 9 Oct 2026, and 18.40 on 9 Oct 2026 (FRED DEXMXUS, checked 18 Oct 2026). A $35,000 check buys about MXN 347,000 at the low and about MXN 880,000 at the high, a 2.5 times swing, and MXN 644,000 today. I do not predict it. Pesos you earn or hold locally are a natural offset.

The US side, the same wherever you live

You stay taxable in the US on worldwide income as a US citizen (IRS). On a non-qualified life-only immediate annuity (SPIA) only the gain share of each check is taxable: the exclusion ratio is your investment divided by the expected return (26 U.S.C. 72, IRC 72(b)). The expected return is the yearly payment times the Table V multiple, which is 20.0 at age 65 (IRS Pub 939, Table V). " "Once you have recovered your premium the exclusion stops and every dollar is taxable (26 U.S.C. 72(b)(2), IRC 72(b)(2)). A deferred income annuity (DIA) is taxed the same way once payments start. Money from an IRA is different: every check is taxable.

Worked example: $500,000 SPIA at 65, illustrative

A US citizen, age 65 at the start, pays $500,000 of after-tax money for a life-only SPIA. I assume a payout of 7.0%, or $35,000 a year (illustrative, not a quote). Expected return is 20.0 x $35,000 = $700,000, so the exclusion ratio is $500,000 / $700,000 = 71.4%. Each year $25,000 is excluded and $10,000 is taxable until the $500,000 is recovered, about year 20. After that the full $35,000 is taxable. " "I assume the $10,000 lands in the 22% federal bracket, which for a single filer in 2026 is taxable income from $50,400 to $105,700 (IRS, Rev. Proc. 2025-32, checked 18 Oct 2026). That is $2,200 a year of US tax. Mexico is shown three ways because the rule for a US annuity is not settled. I convert at 18.399 pesos per dollar (9 Oct 2026, Federal Reserve H.10) and apply the 2026 Mexican resident table to the amount taxed, with this check as the only income and no deductions, which understates Mexican tax for most people (PwC, checked 18 Oct 2026).

After year 20 the whole $35,000 is taxable in the US, about $7,700 at 22%. In case C that exceeds Mexico’s $6,502, so the total becomes about $7,700. None of the three countries on these pages taxes by age at the start, so there is no age-70 line; the US exclusion at 70 would use the Table V multiple of 16.0 (IRS Pub 939, Table V).

Reading it. If Mexico exempts or taxes only the gain share, you pay what you would pay in the US. If Mexico taxes the whole check, the annuity costs about $4,300 a year more than the US alone. That gap is the reason to get the Mexican written view first. A MYGA or DIA changes the timing, not the logic: nothing is paid until you draw, the US taxes the gain on withdrawal, and Mexico’s treatment of the build-up is the open question above.

How to use this

Tell me where you plan to live, your age, and whether the money is IRA or after-tax. I will size the SPIA or DIA while you still live in the US, and your Mexican adviser should confirm in writing which of the three cases applies before you buy.

I am a US-licensed insurance agent and an Enrolled Agent (EA, admitted to practice before the IRS). I can only help with annuities while you still live in the US, and I do not give Mexican tax or legal advice: get a local adviser’s written view before you move. The payout in the example is an illustrative assumption, not a quote. This is education, not tax advice.

Frequently asked questions

Related reading

• Moving abroad on a fixed income: the hub
• Where a US annuity is tax-smart abroad
• The exclusion ratio when you live abroad
• Mexico temporary residency income requirement
• Wealth tax by country and US annuities
• Costa Rica US annuity tax for retirees
• Panama US annuity tax for retirees

Sources

• US-Mexico income tax convention (IRS text): Art. 1(3), Art. 19, Art. 24
• Ley del Impuesto sobre la Renta (Cámara de Diputados): arts. 1, 90, 93 fr. IV and XXI, 133
• PwC Worldwide Tax Summaries: Mexico, taxes on personal income (2026 rate table, reviewed 6 Aug 2026)
• PwC: Mexico, residence
• PwC: Mexico, other taxes (no net wealth tax, no inheritance tax)
• Federal Reserve H.10 via FRED: DEXMXUS, pesos per US dollar
• 26 U.S.C. 72 (annuities: exclusion ratio in 72(b), refund feature in 72(c)(2))
• IRS Publication 939 (Rev. December 2025): Table V multiples, refund feature, end of exclusion
• IRS: 2026 inflation adjustments (22% bracket, Rev. Proc. 2025-32)
• IRS: US citizens and resident aliens abroad