Moving Abroad Before 59½: Lifetime Income From Your IRA or Savings Without the 10% Penalty

Written by Hans Goldstein, licensed insurance agent · CA 4273294
Updated October 2026

Not everyone who wants to move abroad is already retired. Some people in their 40s or 50s have the savings but not the paycheck that a residence permit asks for, and the obvious move, pulling money out of an IRA, runs straight into the 10% early-distribution tax. There is a cleaner way, and it is written into the tax code.

The 10% rule in one paragraph

• IRAs and 401(k)s: distributions before 59½ owe an additional 10% tax on the taxable amount (IRC §72(t)(1)), on top of ordinary income tax, unless an exception applies.
• Non-qualified annuities: the earnings part of a withdrawal before 59½ owes a similar 10% tax under §72(q), again unless an exception applies.

Exception 1: a non-qualified immediate annuity (§72(q)(2)(I))

The 10% tax does not apply to payments from an "immediate annuity contract" as defined in §72(u)(4): one bought with a single premium, whose annuity starting date is no later than one year from purchase, and which pays a series of substantially equal periodic payments at least annually. A standard life-only SPIA fits that description.

Annuitizing an older deferred annuity, or exchanging it into a SPIA, generally does not make it an "immediate annuity"; it can still avoid the 10% if it pays substantially equal periodic payments for your life or joint lives (§72(q)(2)(D)). Confirm with the insurer before you rely on either exception.

You also keep the exclusion ratio: part of every payment is your own premium coming back untaxed. See the exclusion ratio for Americans abroad.

Exception 2: a life annuity inside your IRA (§72(t)(2)(A)(iv))

The 10% tax does not apply to distributions that are part of a series of substantially equal periodic payments, made at least annually, for your life (or life expectancy) or the joint lives of you and your beneficiary. A lifetime annuity bought inside the IRA pays exactly that.

• The recapture rule (§72(t)(4)): if the payments are modified before the later of five years or age 59½, the waived 10% comes back with interest. A life annuity pays on its schedule, so it naturally keeps the series going.
• Tax: IRA money has no after-tax basis in most cases, so every payment is ordinary income.

The approach that backfires: a lump sum to "show savings"

Pulling a lump sum out of an IRA to show a consulate a bank balance costs income tax plus 10% on the whole amount, and it usually does not even solve the problem. Many permit tests count only income: UDI in Norway excludes "own funds (money in an account)", and Italy’s elective residence consulates generally do not accept savings. Spain does accept savings, but you must show the full amount again for each permit period (about EUR 57,600 for a single person’s two-year renewal), so a shrinking balance gets harder to use.

Side note: the 55 rule for a 401(k)

If you leave your job in or after the year you turn 55, distributions from that employer’s plan are exempt from the 10% tax (§72(t)(2)(A)(v)). This exception does not apply to IRAs (§72(t)(3)(A)), so think before rolling the 401(k) into an IRA if you plan to use it.

What it costs: a payout example

The youngest age in the September 9, 2026 ImmediateAnnuities.com survey is 58. Life-only, per $100,000 of premium, it shows an average of $567 a month for a man (6.80% a year) and $550 for a woman. Illustrative, not a quote.

Younger buyers get less per month because the insurer expects to pay for more years, so a 55-year-old would get less than the age-58 figure. Get a real quote for your age and start date.

Already 59½ or 62? What changes for you and your spouse

• At 59½ or older the 10% additional tax no longer applies to IRA distributions or to the earnings in a non-qualified annuity, so the exceptions above stop mattering. At 62 you simply choose the payout that fits the permit.
• Couples with an age gap: the 10% rule follows the age of the account owner. If one spouse is 62 and the other 56, money from the younger spouse’s IRA still needs an exception; a life annuity for the joint lives of the owner and the spouse qualifies under §72(t)(2)(A)(iv).
• Payout at 62: the September 9, 2026 ImmediateAnnuities.com survey shows life-only averages per $100,000 of $603 a month for a man and $582 for a woman, so $1,000 a month needs about $166,000 (man) or $172,000 (woman). A joint and survivor annuity pays less per dollar; get a quote. Illustrative, not quotes.

How this ties to the permit you want

The trade-offs, once

A life-only annuity is irreversible. IRA-funded payments are fully taxable as ordinary income. Payouts are lower the younger you start. And payments are level unless you add a cost-of-living rider, so size with 10 to 25% headroom over the requirement. What you get in return: income for life, no 10% penalty, and the kind of income a consulate counts.

Buy while you still have a US address, and start payments 3 to 12 months before you apply so you can show them arriving. If you are in your 40s or 50s and planning a move, run your numbers with the calculator on this page.

Frequently asked questions

Related reading

• Moving abroad on a fixed income: hub
• Why a US annuity is tax-favored: the exclusion ratio
• What income counts for UDI and how an annuity qualifies
• Italy elective residence visa income requirement
• Spain non-lucrative visa income requirement
• Immediate annuity calculator

Sources

• 26 U.S.C. section 72: (q), (t) and (u)(4)
• IRS: Retirement topics, exceptions to tax on early distributions
• IRS Publication 575: Pension and Annuity Income
• ImmediateAnnuities.com: immediate annuity rates by age (survey of September 9, 2026)