If You're a U.S. Retiree Living in Portugal, Your Tax Plan Needs a Post-NHR Strategy ASAP

When your 10-year Non-Habitual Resident tax break expires (it's not renewable), you could see your tax rate soar — unless you start taking steps to plan for this change well before the NHR window closes. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. For many Americans who moved to Portugal in the past decade, the Non-Habitual Resident (NHR) program has made living there remarkably tax-efficient.It offered a flat 10% rate on pension income and exemptions on certain foreign-source income for 10 years — long enough for many to settle in and stop thinking much about what comes next.But that 10-year clock runs out surprisingly quickly.Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.I work with many clients who applied from 2017 to 2020 and are entering the final stretch of their NHR windows. For them, the end of NHR can mean a sharp and permanent increase in their effective tax rate — often rising from 10% to above 40% — if they don't prepare for the change.Looking at the numbers on paper is enough to make some Americans want to flee the country, notably to more friendly cross-border waters in France.The good news, however, is that with enough foresight, it's possible to stay in Portugal comfortably and avoid that kind of financial shock.First things first: NHR isn't renewable. After 10 years, you revert to Portugal's standard tax system, in which personal income is taxed progressively up to 48%. That shift can feel abrupt, especially for Americans accustomed to a lower U.S. effective rate.About Adviser IntelThe author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.The most effective window for planning is roughly five years before NHR ends. That's when there's still time to act on both sides of the Atlantic, using tax, investment and distribution strategies that smooth the transition to ordinary residency.In practice, this means reviewing the mix of pretax and post-tax assets and deciding how to draw them down over the remaining NHR years. Many Americans have significant wealth in pretax retirement accounts such as IRAs or 401(k)s.While those accounts benefit from the NHR's 10% rate on pension income, they'll face Portugal's full progressive tax schedule afterward.By contrast, post-tax assets such as Roth IRAs or taxable brokerage accounts offer more flexibility. This period is the opportunity to consider gradual Roth conversions or limited IRA distributions while the NHR rate still applies.Waiting until after it expires can leave you with fewer options and higher exposure once Social Security and required minimum distributions (RMDs) begin.It's important to remember that Americans remain liable to file U.S. taxes, even after becoming tax residents elsewhere. When NHR ends, your Portuguese tax residency doesn't replace U.S. obligations; it adds another layer to them.Your local tax plan must guide your U.S. plan, not the other way around. Coordinating the two is what keeps you compliant in both countries while avoiding double taxation.This coordination is achieved through tax treaties and foreign tax credits, but those mechanisms only work properly if the planning is intentional. Filing correctly after the fact won't fix structural issues, such as taking large IRA withdrawals in a year when your income already pushes you into Portugal's top tax bracket.For couples or individuals planning to stay in Portugal indefinitely, aligning both tax systems is less about optimization and more about sustainability, ensuring your plan continues to function when your income sources and tax treatment shift simultaneously.Think of your retirement assets as two buckets: income and capital gains.Portugal taxes income progressively but applies a flat 28% rate on most investment gains. During the final NHR years, the goal is to avoid overfilling the income bucket by pulling too much from pre-tax accounts once NHR ends.In practice, that can mean:The idea isn't to eliminate taxes but to smooth them out. Think of it as trading short-term efficiency for long-term stability.An American couple who moved to Lisbon in 2019 are now in their sixth year of NHR. Their income consists of Social Security, IRA withdrawals and dividends from a U.S. investment portfolio.When they came to me, they were focused on their monthly budget but hadn't considered how their tax picture would change in four years. Under the NHR, their Portuguese tax bill was roughly €9,500 (about $10,500).Without planning, that would have climbed to more than €30,000 (about $35,000) after the exemption expired.Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel, our free, twice-weekly newsletter.We built a five-year transition plan. Each year, they convert a portion of their IRA funds to a Roth while rates are low, and gradually shift more of their portfolios into taxable investments.By the time NHR ends in 2029, most of their withdrawals will come from Roth IRAs and investment gains taxed at the 28% flat rate.Instead of a 20-point increase in their effective tax rate, their overall burden will stay roughly consistent. The process didn't eliminate taxes, but it did make them predictable, which made them far less intimidating to manage.If your NHR period is nearly over, there's still value in planning now. Understanding how income will be treated under the standard regime helps you budget realistically and prioritize which accounts to draw from first.For some, it might even make sense to consider relocation to another country with more favorable tax treatment, such as France.But for many, the goal isn't to leave Portugal, and that's understandable. Ten years is a significant period of time, and for many expats, Portugal becomes a home they can't imagine leaving without difficulty.Portugal remains a wonderful place to retire. The weather, health care and pace of life draw many Americans here for good reason. But the NHR program was always meant to be temporary, and its expiration doesn't have to be a crisis.Planning early (ideally five years before the clock runs out) allows you to adapt your U.S. and Portuguese tax strategy in tandem, protecting both your income and your peace of mind.When the program ends, the question won't be, "What now?" It will be, "Am I ready?"This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.Ricardo specializes in cross-border financial and tax planning for Americans living in Portugal, combining technical expertise with a strong personal connection to the expat experience. As a fiduciary and licensed investment advisor (Series 65), he provides independent, transparent guidance on wealth management, residency planning and international taxation. Born and raised in Portugal's Algarve region, he now helps U.S. expats across Europe build clear, confident and sustainable financial plans tailored to their goals and global lifestyle. With target-date funds falling short on income certainty, retirement plans should integrate guaranteed income solutions. Here is what participants can do. November job growth was stronger than expected, but sharp losses in October and a rising unemployment rate are worrying market participants. With rate cuts impacting earnings, we examine if now is a wise time to renew CDs. With target-date funds falling short on income certainty, retirement plans should integrate guaranteed income solutions. Here is what participants can do. 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