How does Portugal tax a Roth IRA or 401(k) withdrawal?

Americans arrive in Portugal assuming the Roth stays tax free because it is tax free at home. Portugal did not sign up to that idea, and the gap between the two systems is where the bill comes from.

Where the taxing right sits

Under Article 20(1)(a) of the US Portugal convention, distributions from a pension plan are taxable in the state of residence. Once you are a Portuguese tax resident, that is Portugal, for a 401(k) and for a traditional IRA alike. The United States still taxes its citizens wherever they live, so both returns get filed and the double tax relief happens through a credit rather than through anyone stepping aside.

The traditional accounts

A 401(k) or traditional IRA withdrawal is Category H pension income in Portugal. The pension specific deduction of 4,587.09 euros comes off first in 2026, then the balance runs through the progressive scale alongside the rest of your income: 12.5 percent on the first 8,342 euros, 34.9 percent between 29,397 and 43,090, 48 percent above 86,634. The solidarity surcharge adds 2.5 percent on taxable income above 80,000 euros. A single large withdrawal in one year pushes you up that scale much faster than the same money spread over several years, which is the planning point most people find out too late.

There is no regime waiting to rescue you either. IFICI, the replacement for NHR since 1 January 2024, exempts most foreign income but names Category H pensions as an exception.

The Roth surprise

Portugal treats the money you originally paid in as a return of your own capital under Article 54 of the IRS code, so that part is not income. The growth on top is taxed as pension income. Article 54 also carries a default of 85 percent for cases where the capital and the growth cannot be separated, and that default is the reason to arrive with clean records rather than a single account balance.

We are not going to tell you how your particular plan will be split, because the answer depends on evidence we cannot see and on how your accountant presents it. Bring the contribution history, year by year, in writing.

Before you withdraw anything

Get the sequencing advice before your first Portuguese tax year, not after it. Portuguese residency starts on your first day of stay, so a distribution taken shortly before you land may sit outside the Portuguese net entirely. Model the Portuguese side in the tax estimator, then take it to an adviser who files in both countries.