Multiple savings with Pillar 3a
Significant tax savings can be achieved with Pillar 3a since the government provides tax incentives for deposits and payouts in order to promote 3a savings. With some skillful planning, you can enjoy multiple savings. We'll show you how.
Voluntary pension provision with Pillar 3a is becoming increasingly important since, in order to maintain the accustomed standard of living during retirement, 1st and 2nd pillar benefits are often not sufficient. For this reason, the Swiss government rewards 3rd pillar deposits with tax incentives.
Saving tax with Pillar 3a
Those who plan ahead have an advantage.
1. How to save income tax when paying into Pillar 3a
Each year, employed persons may pay an amount into their Pillar 3a and deduct that from their taxable income. Gainfully employed persons with a pension fund are entitled to deduct up to a maximum of CHF 6,826 for 2019. For employed persons without a pension fund, this amount is 20% of net earned income, up to a maximum of CHF 34,128.
2. Save additional taxes during the savings term
During the entire savings term, you benefit from the fact that no wealth tax is levied on your savings deposits. Interest and returns generated during the term are also not taxed.
3. Save taxes with smart withdrawals from Pillar 3a
During payout of the retirement savings, taxes are due, but they are separate from other income and at a reduced tax rate. Good planning is especially important here, since staggered withdrawals can, depending on the canton and the circumstances, break the tax progression.
By planning ahead, you can save a great deal on taxes.
Pillar 3a: Tax savings optimally planned
A few particularities must be observed if you want to save tax with the 3rd pillar:
- Payment into the Pillar 3a is most worthwhile in terms of tax during years with a high income. This is especially important for married dual earners who can deduct the maximum amount twice, since each AHV-paying employed person may deposit only a limited amount into the personal Pillar 3a pension account once annually. As is frequently the case in Switzerland, here too, the tax savings per deposited franc is different depending on the canton and municipality.
- As a basic rule, the higher the payout from Pillar 3a is during a tax period, the more it will be taxed. This can be avoided by opening more than one 3rd pillar pension account. The Pillar 3a capital is paid out on a gradual basis over multiple years (from 5 years before you reach the AHV retirement age). You can then benefit from a lower tax rate and more flexible withdrawal of assets. But there are exceptions to every rule: There are now cantons in which, regardless of the amount of the Pillar 3a withdrawal, the same tax rate is always used for the entire pension assets.
- Only those who pay into Pillar 3a by December 31 can save taxes for the current year. In contrast to the pension fund (2nd pillar), it is not possible to make retroactive deposits for missed years.
It is important to assess Pillar 3a as part of the overall pension situation, thus also taking the AHV, the pension fund, other assets, and all obligations into account. This is generally a complex undertaking best done with the advantage of advice from a specialist who also knows the situation of the respective canton.