So I am heading down the path of a GV for Portugal. If I obtain citizenship, what are the long term impact of taxes to my American IRA and 401Ks. Will Inhave to pay both or just become a non habitual tax resident?
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As long as you remain a US citizen you are going to be required to file a tax return every year to pay tax to the US Government on your worldwide income. The good news is if you are working overseas you get a Foreign Earned Income Exclusion of $107,600 that you won’t have to pay tax on. You are best to keep your IRA’s and 401K’s but you may need to roll them over to someone that will manage them for a non resident. There would be no tax issues in Portugal until you use them to buy an annuity and start taking an income from them. As long as your income remains below the Foreign Earned Income Exclusion the only tax you will need to pay is the Non Habitual Resident tax of 20%.
Thank you. This is very helpful. I assume that since US capital gains taxes are higher than 20% there would not be any Portuguese tax.
Just to dig into this a little more, what if it’s a Roth 401k and/or Roth IRA. That means the money has gone in with post-tax money, but grows tax free…withdrawals are also tax free. Since the US doesn’t tax it on withdrawal…does that mean that Portugal would?
In short, yes.
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Well, that’s not good. Roth is very popular…especially cause taxes are relatively low now and may snap back in 2025.
Once I start taking withdrawals, I expect that we will be creative about how many days we spend in Portugal. As long as you do not have a residence there on 12/31 and stay less than 183 days, you will pay no tax. It is not any different from my family counting the number of says that they are in Florida and New York to avoid NY taxes.
Continuing the Roth IRA theme, here’s an exotic but important tax question:
Let’s say I move to Portugal and establish Non-Habitual Resident taxation status. I then spend several years progressively converting my 401k balance to a Roth IRA, up to the limit each year of the 24% US tax bracket. Does that count as regular (non-taxable) foreign income for Portuguese taxation? Does it count as pension income, subject to 10% income tax? The latter seems like a stretch, but it is related to retirement.
Either way is fine with me, since the USA is going to take whatever is left after Portugal takes a potential first cut, but I want to make sure I am astute with my tax planning and diligently correct with my filing.