Gizane Campos For American investors considering Portugal’s Golden Visa, using a Roth IRA can be both appealing and confusing. On one hand, Portugal offers a tempting mix of lifestyle benefits and favorable tax policies. On the other hand, the US Internal Revenue Service (IRS) doesn’t simplify international IRA investments.
However, there is an effective way to make this happen. In this article, we’ll take a look at how this strategy works and how American investors can use their Roth IRAs to apply for a Portugal Golden Visa.
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Roth IRA: The Basics
The concept of the Roth Individual Retirement Account (IRA) was co-created by Senator William Roth in the late ‘90s and is essentially a US retirement account that helps Americans grow money tax-free.
To put it in simple terms, it’s a retirement account where you put in money that you have already paid taxes on and it grows over time. When you are ready to retire, you withdraw the money tax-free, including all the investment gains.
A regular Roth IRA is administered by a custodian, usually a large financial institution such as Vanguard or Fidelity. They assume almost full control and only allow you to invest in things like stocks or mutual funds.
If you decide to have a self-directed Roth IRA, you choose what your money should be invested in, whether it be stocks, real estate, or foreign funds like the Portugal Golden Visa. You’d still need to get it cleared with a specialized custodian, but you are mostly in control.
For even greater investment freedom, you can go with a Checkbook Roth IRA. It’s similar to a self-directed IRA, but you create a Limited Liability Company (LLC), move your Roth IRA funds into the LLC, and then the LLC invests in IRS-approved assets.
Read our Portugal Golden Visa Ultimate Guide
How does a Roth IRA relate to Portugal’s Golden Visa?
One of the avenues that are available to American investors is the Portugal Golden Visa investment fund. This route requires a minimum investment of €500,000 in a qualified Portuguese investment fund, such as a private equity or venture capital fund that meets the Golden Visa criteria.
Most Roth IRAs don’t allow you to invest in non-traditional assets like foreign real estate or private equity funds. However, with a self-directed Roth IRA you can invest in these alternative assets like the investment funds that qualify for Portugal’s Golden Visa – provided the investment is IRS-approved and follows the necessary compliance rules.
Even though you’re investing internationally, the account retains its US tax advantages, your money continues to grow tax-free, and you don’t trigger early withdrawal penalties as long as the structure is correctly set up and IRS rules are followed.
Roth IRA Portugal Requirements
Before you go ahead and start investing your money, there are several requirements that must be met to stay compliant with US tax law and legally qualify for Portugal’s residency program. It’s not as simple as transferring money overseas and then applying for the Golden Visa.
Here’s a simplified breakdown of the requirements:
You need a self-directed Roth IRA through a specialized custodian that allows non-traditional investments- Create an IRS-Compliant Limited Liability Company for checkbook control
- The investment fund must be regulated by the Portuguese Securities Market Commission (CMVM)
- The minimum investment amount is €500,000, as stipulated by the Golden Visa rules and excludes real estate
- It must require a formal subscription process
- The fund must not be publicly traded on an exchange, as exchange-traded funds (ETFs) are not eligible for Golden Visa purposes
- The investment must benefit the IRA and not you directly
- You can’t invest in a company you or close family members personally own
You need a self-directed Roth IRA through a specialized custodian that allows non-traditional investmentsStep-by-Step: Using a Roth IRA to Invest in a Portugal Golden Visa Fund
It might seem like a lot of paperwork to structure this investment route, and you’d be correct. There are several steps that you’ll have to follow to ensure you remain compliant with all the rules and regulations. Here’s a simple breakdown of how it can be managed:
Step 1: Open a self-directed Roth IRA: You’ll need the assistance of a specialized custodian that allows investments in alternative assets to open a self-directed Roth IRA.
Step 2: Set up an LLC (for Checkbook control): Once the account is setup, you create a Limited Liability Company to get full control over the investment process. It’s important to note that the Roth IRA owns the company, not you personally.
Step 3: Fund the LLC with Roth IRA money: After the LLC’s creation, the Roth IRA custodian transfers the funds into the LLC’s bank account, which you manage as its designated manager, while adhering to all IRS rules
Step 4: Research Golden Visa-qualified funds: For the next step in the process, you should investigate options for investing as part of the Portugal Golden Visa. Keep in mind that the minimum investment must be €500,000, it must be UCITS-compliant and must fall within IRS-approved investment categories. That means you can’t invest in collectable or personal benefits, for example.
Step 5: Invest in Portugal Golden Visa: Once you’ve identified an approved investment route, your Limited Liability Company transfers funds directly to the Portuguese investment fund. The subscription agreement and documentation will list the LLC as the investor, since the LLC is the legal entity owned by your Roth IRA.
Step 6: Submit Your Golden Visa Application: After the required minimum investment has been transferred, you can start submitting your documentation for the Portugal Golden Visa. You’ll need to provide proof of the investment, all fund documentation, and show evidence that the fund qualifies under Portugal’s immigration law. It’s always best to consult with a Portugal immigration lawyer to clear up any doubts.
Read our Portugal Visas Ultimate Guide
How Roth IRA Withdrawals Are Treated in Portugal
Most Americans who manage their own finances know that Roth IRAs are tax-free in the US. But how does that translate to Portugal? Well, it works slightly different on the Iberian Peninsula as Portugal taxes your worldwide income.
Once you meet the 183-day rule within a calendar year, you’re considered a tax resident. At this point, your Roth IRA withdrawals are seen as foreign income and taxed accordingly.
Unlike US Social Security benefits, which may be exempt under the US-Portugal tax treaty, Roth IRA withdrawals are typically treated as foreign income and taxed in full by Portuguese authorities. Portugal does not separate contributions from growth when assessing tax on these distributions.
Roth IRA vs. 401(k) for Portugal Golden Visa Investors
If you find the Portuguese Golden Visa appealing, you might be weighing up your options in funding methods. Should you use your Roth IRA or your 401(k) to fund the investment? Well, that depends on the level of control and tax flexibility you need.
With a 401(k), tax is deferred, meaning you pay taxes when withdrawing and most 401(k)s have limited investment choices. On the other hand, a self-directed Roth IRA allows you to invest in different options and is tax-free when making withdrawals in retirement.
However, the crucial question is which option is best suited for the Portugal Golden Visa? The Roth IRA, especially a checkbook version, is the better fit for the Golden Visa. You can invest directly in Golden Visa-eligible funds through a dedicated LLC, where as with a 401(k), your options are very limited.
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Frequently Asked Questions About Roth IRA in Portugal
What happens to my Roth IRA if I move to another country?
Your Roth IRA remains in the US and continues to grow tax-free. Moving abroad doesn’t change its US tax treatment. However, local tax rules in your new country may apply once you start making withdrawals.
Does Portugal tax Roth IRA distributions?
Yes, Portugal may tax Roth IRA withdrawals, even though they’re tax-free in the US. The Portuguese tax authority doesn’t automatically recognize US. tax-exempt treatment and may consider distributions as taxable income.
Is my Roth IRA tax-free in Portugal?
Not necessarily. Portugal doesn’t have a special exemption for Roth IRAs. Distributions are typically taxed as income unless covered under a specific exemption, which may depend on timing, residency status, and treaty interpretation.
How are Roth IRA withdrawals treated under Portugal’s tax laws?
Withdrawals are generally treated as foreign income and may be taxed, especially if you’re a tax resident. Portugal doesn’t distinguish between contribution and growth portions like the US does, so the entire withdrawal could be taxed.
Will my US pension be taxed in Portugal?
Yes, Portugal typically taxes US pensions. However, under the US-Portugal tax treaty, some pensions—especially Social Security benefits and certain government pensions—may be taxed only in the US, depending on your permanent residency status and treaty interpretation.
What are the Roth IRA in Portugal requirements for tax exemption?
Portugal does not provide specific tax exemptions for Roth IRAs. Any exemption would depend on applying broader income rules or treaty provisions.
Do I need to declare my Roth IRA in Portugal?
Yes. If you become a Portuguese tax resident, you must declare foreign assets, including retirement accounts like Roth IRAs, on your annual tax return (Modelo 3 and Annex J), even if you don’t make withdrawals.
Are Roth IRA distributions considered foreign income in Portugal?
Yes. Roth IRA distributions are considered foreign income and may be taxed under Portugal’s personal income tax rules, unless covered by a specific tax exemption.
What happens to my Roth IRA if I become a tax resident in Portugal?
Your Roth IRA stays in the US, but Portugal may tax any withdrawals you make, like social security. You’ll also need to report the account annually. Planning ahead, especially around residency timing, is key to managing taxes.
