I 'm moving to Cancun Mexico when I retire this month. I would like to cash out my 401K,
Do I pay taxes when I cash out or when filing an tax return which will be hard since I will
Be out of the country.

When you take the withdrawal from your 41(k) they will automatically withhold 20% for federal income taxes. If you are in a higher tax bracket you will have to pay the difference when you file your federal return at the end of the year. If you are in a lower bracket, you will get a refund when you file. Also, don't forget that if you are resident of a state/municipality that has income taxes, and you receive your distribution before moving to Mexico, you will owe those taxes as well.

The plan administrator will withhold federal income tax. You must file your income tax return and report the withdrawal as income.
Read Your U.S. Tax Return: Elective Deferrals 401(k) Plans (http://taxipay.blogspot.com/2008/08/elective-deferrals-401k-plans.html)