My family and I moved from the US to Portugal in July 2022, and have about 8 years of NHR left. Our plan is to slowly convert our IRAs to Roths to fund our early retirement. The amount converted in a given year is listed as a distribution in our US tax form and is taxed accordingly in the US. This same amount can then be removed from our Roth account after 5 years to fund our retirement. Am I correct in assuming that since this amount has already been taxed during the conversion process in year 1, it will not be taxed again when we withdraw the exact amount in year 5 and move it to Portugal? The tax filings and related tax forms will show that taxes on this have already been paid in the US and that we are only withdrawing the contribution amount and not any associated capital gains.
This a taxation minefield and one that has driven me to decide to never become a tax resident in Portugal. There are LOT of conflicting articles. Ultimately looks like it will become a matter of your tax attorney being able to convince the tax authorities on how you are reporting your income, what is, and isn’t taxable.
Here is a link to one of many articles.
Understanding Roth taxation in Portugal
When I read the above here is how I interpret it and I am NOT a tax lawyer.
You rollover 100K and paid taxes on it in the US at time of rollover. Your capital is $100K
The 100K becomes 200K because you are a smart investor.When you withdraw money the first 100K can be claimed as capital return and non-taxable. The second 100K will be taxable since it is the growth in the capital.
PWC used to have something about this but I noticed they have removed it on their site, which tells me the minefield morass is deep enough for PWC to not publicly post anything on a website and be liable for giving bad advice.
Edited to fix typo: Your vs You are