User Question 8:
We're trying to avoid a mortgage. We would be selling our house worth about 800-900k usd. Would we be able to conntinue paying into our US 401k, or would there be something more sensible/safer/better?
Claude's Response:
With over $800k, you're in an excellent position to buy outright and avoid mortgage complexities! However, the 401(k) situation is more nuanced than you might expect.
The 401(k) Challenge: Once you become a Portuguese tax resident, you can keep your 401(k) but cannot make new contributions because you're no longer employed in the US. The bigger issue is taxation of withdrawals.
Portugal Tax Implications:
- The original NHR tax regime is no longer available (deadline passed March 31, 2025)
- However, Portugal now has "NHR 2.0" (IFICI) which offers a 20% flat tax rate on qualifying income
- Under the old NHR, 401(k) distributions were taxed at just 10%, but the new system's treatment is still being clarified
- Retirement income may be tax-exempt in Portugal if taxes are paid in the source country and there's a Double Taxation Agreement
Better Alternatives to Consider:
For Portugal/France:
- Roth IRA conversions before you move - pay US taxes now, then withdrawals are tax-free
- European investment platforms once resident (lower ongoing fees, EU regulatory protection)
- Property investment - your gîte business could be both income and retirement vehicle
- International pension/insurance products designed for expats
Immediate Priority: You absolutely need a US expat tax specialist and a Portuguese tax advisor to model different scenarios before you move. The interplay between US and Portuguese taxation on retirement accounts is complex and costly mistakes are easy to make.
Strategic Timing: Consider doing major 401(k) planning (conversions, withdrawals) in your final US tax year to optimize the transition.
Would you like me to help you find resources for this specialized tax planning? It's honestly the most critical piece to get right.