In 2017/2018, Swiss taxpayers enrolled in a pension fund can contribute up to 6768 francs to their pillar 3a retirement savings. Those not enrolled in a pension fund can contribute up to 20 percent of their annual income, up to a maximum contribution of 33,840 francs, to their 3a retirement savings.
Contributions are tax-deductible
The benefit of making deposits into your third pillar savings is that the full amount deposited can be deducted from your taxable income.
Swiss tax declaration forms include a unique field in which you can enter the amount you have contributed to the third pillar. Swiss banks and insurance companies will provide you with a statement showing the exact amount of contributions made, both for your own reference and for tax purposes.
3a savings are tax free until withdrawn
Assets held in the third pillar are tax free until you withdraw them. You do not have to pay wealth tax on these retirement assets.
Interest earned on retirement assets does not have to be declared in your tax return. Neither income tax nor withholding tax applies. This is true for 3a savings accounts, 3a investment accounts and 3a insurance policies.
Lower income tax: the main benefit of 3a contributions
Depending on how high your taxable income is (and which canton you live in) you can save well over 1000 francs per year on income taxes. You can then invest these savings and profit from the compounding interest effect.
Low tax upon 3a asset withdrawal
A tax applies when you cash out your third pillar retirement savings. However, 3a assets are taxed at a special rate, which is lower than the normal income tax rate.
The only downer: Pillar 3a assets can only be cashed out when you reach the age of 60 (for men) or 59 (for women). Under special circumstances, they can also be cashed out when you become self-employed, purchase a home or permanently move out of Switzerland.
Suggestion: open multiple 3a accounts
Opening multiple 3a accounts has a number of benefits, and there is no legal limit to the number of 3a accounts you can open.
This lets you spread the withdrawal of your 3a assets over several years to avoid being bumped into a higher tax bracket. Holding accounts at multiple banks also minimizes your risk of loss resulting from bank bankruptcies.
Investment or savings account?
You can invest in the third pillar using either an investment account or a savings account.
Securities-based investment accounts can, depending on economic developments, timing of entry and exit and account fees, deliver higher yields than regular savings accounts. But that isn’t always the case. Investment accounts come with a certain amount of risk, and you may also lose money on this type of account.
Another advantage of regular 3a savings accounts is that at most banks, they come with higher yield rates than regular savings accounts.
The moneyland.ch team