U.S. Roth IRAs and Portuguese Tax Residency
- INLIS Consulting
- Jul 10
- 4 min read
Learn how U.S. Roth IRAs and other retirement accounts are taxed in Portugal for D7 visa holders. Understand NHR benefits, tax treaty rules, and why Roth withdrawals aren’t tax-free in Portugal. Includes rates, tables, and expert insights.
How Roth IRAs Are Taxed in Portugal for U.S. Citizens
Moving to Portugal on a D7 (retirement/passive-income) visa means you will become a Portuguese tax resident (generally if you spend over 183 days per year. As a resident, you must report your worldwide income in Portugal.
Under the U.S.–Portugal tax treaty, private pension and retirement distributions (including IRA/401(k) withdrawals) are taxed by the country of residence (Portugal), whereas public pensions (e.g., U.S. Social Security or government plans) may be taxed by the source country
In practice, this means that your U.S. retirement accounts will be subject to Portuguese tax rules, even if those withdrawals were tax-free in the U.S.
Coastal scene in Cascais, Portugal – many U.S. retirees on the D7 visa are attracted to Portugal’s lifestyle and weather. Once you have Portuguese tax residency, your Roth IRA distributions must be declared on your Portuguese return. Portugal has progressive income tax rates on residents’ worldwide income, roughly 13–48% for 2025 (after a personal allowance). For example, Portugal’s 2025 brackets start at 0% on the first ~€12,180 of income, then climb through rates of 13%, 16.5%, 22%, 25%, etc., up to 47.17% on income above ~€283,000
Under the now-closed Non‑Habitual Resident (NHR) regime, foreign pension income (including IRA/401(k) distributions) was taxed at a flat 10% (The NHR program ended for new applicants in 2024, but existing NHR status holders keep the 10% benefit until their 10-year term expires.) Without NHR status, your Portuguese tax would simply follow the ordinary progressive table above.
Taxable Income (EUR) | 2025 Tax Rate |
Up to €12,180 | 0% (exempt) |
€12,180 – €13,888 | 13% |
€13,888 – €15,904 | 16.5% |
€15,904 – €16,618 | 22% |
€16,618 – €25,018 | 25% |
€25,018 – €29,092 | 32% |
€29,092 – €34,048 | 35.5% |
€34,048 – €45,262 | 38.72% |
€45,262 – €77,658 | 40.05% |
€77,658 – €283,094 | 44.95% |
Over €283,094 | 47.17% |
Portuguese individual income tax rates (2025); source: Portuguese tax tables
Portuguese Treatment of Roth Distributions
Importantly, Portugal does not recognize the U.S. concept of “tax-free” Roth withdrawals. Instead, Portuguese law treats a Roth IRA (a retirement savings account with after-tax contributions and tax-free growth) as a pension-like annuity.
The key Portuguese rule is that the return of your original contributions (your cost basis) is not taxed, but the investment growth is taxable as pension income.
In practice:
Return of contributions (capital): The portion of each Roth distribution that simply reimburses your previously taxed contributions is exempt in Portugal (Portuguese law analogizes this to “capital reimbursement” in an annuity, which Article 54 of the tax code says is non-taxable.)
Investment earnings (growth): The remaining portion – essentially the gains or “capital growth” – is taxed as foreign pension income. Under NHR, this pension income is taxed at a flat 10%; otherwise, it is added to your other income and taxed at the normal progressive rates.
For example, if you contributed $100,000 into a Roth IRA and later withdrew $120,000, only the $20,000 gain would be taxable in Portugal (10% or your marginal rate), while the $100,000 return of capital would be tax-free.
In many cases, taxpayers simply track their total contributions and take early withdrawals as a return of capital. Portuguese advisors note you have some flexibility in “labeling” withdrawals: you could report withdrawals first as untaxed return of capital and then pay tax on subsequent earnings.
For example, FreshPortugal explains one strategy: if you plan to stay long-term in Portugal, you might designate your early distributions as taxable pension (at 10%) and defer claiming the tax-free principal return until later, thereby smoothing your tax exposure.
Other U.S. Retirement Income
Traditional IRAs/401(k)s (non-Roth): These work similarly but without any tax-free portion. When you withdraw from a traditional IRA or 401(k), the entire distribution is treated as pension income in Portugal and taxed accordingly (10% under NHR, or progressive otherwise). You can still get a U.S. tax credit on Form 1116 for any tax paid in Portugal, but U.S. tax will generally be deferred until distribution (as usual).
Roth 401(k) / Roth 403(b): These are treated like a Roth IRA – contributions return is tax-free, growth is taxable in Portugal (see above).
U.S. Social Security: This is a public pension. Under the treaty, Social Security benefits “may be taxed” by the U.S. (the source country), IRS.gov.
In practice, Portugal typically does not tax U.S. Social Security of its residents (the U.S. will withhold tax if applicable). In the words of a Portugal-pathways advisory, “public pensions (e.g., social security) will be taxed in the country of origin (i.e., the USA).
Portuguese pensions: Not usually relevant for arriving U.S. retirees, but Portuguese government pensions follow the converse rule: if you later live in the U.S., those would be taxed in Portugal.
Tax Reporting and Planning
When you file your annual Portuguese return (between April and June for the prior year, you must report all foreign income, including IRA distributions. Keep good records of your Roth contributions and withdrawals, so you can justify the non-taxable “capital” portion.
Note that Portugal’s rules effectively ignore that Roth withdrawals were already tax-free in the U.S. – it sees only the growth as new income to tax.
Key takeaways:
All U.S. retirement distributions (IRAs, 401(k)s) paid to a Portuguese resident are taxed in Portugal, not the U.S. (per the treaty).
Roth IRA withdrawals are not entirely tax-free in Portugal: only your original after-tax contributions escape Portuguese tax, while the investment gains are taxed as pension income (at 10% under NHR, otherwise up to ~48%).
By contrast, U.S. Social Security (a public pension) remains taxable by the U.S., not by Portugal In practical terms, a U.S. retiree on a D7 visa should plan to pay Portuguese tax on most Roth distributions (albeit at favorable rates), and may be able to claim a U.S. foreign tax credit for any Portuguese tax paid.
As these rules can be intricate, it’s wise to consult a tax advisor experienced with U.S.-Portugal issues.
