Hi,

Actually it's nearly the same to put money in a 3pillar ou in the 2pillar, the deduction for the tax will be exactely the same. I will say that it's more logical to put first all what you can in your second pillar and then in your third pillar.

About rapatriation, it must be also exactly the same thing, you need to gove the same paper to take back with you the second ou the third pillar, but juste why kind of nightmare is it to take the third pillar ? Because for people who are not US citizen it's really easy.

Don't hesitate to ask me, I'm working in UBS and I can ask my collegue for more information if you need.

David

I think when you say 'buying back years on your pension' you mean second pillar.

If so then I would advise going for that as you'll save 40% odd on each franc you put in (as you'll get your income tax back/ get an income tax reduction) whereas you'll only have to pay around 20% to take it out if you were to leave/ wanted to use the money as a deposit on a house etc. (I'm simplyfiing here a bit, but its broadly correct). There is a limit on when you can take it out without paying a penalty and its 3 years.

Also depending on how old you are and how much you earn you can put a lot more in 2nd pillar than in 3rd which is capped at about 6300chf. There is a limit on how much you can put in 2nd pillar as the authorities got wise to people putting in their whole salary to avoid all income tax and living off savings...

The only wrinkle is that if any money put in 2nd pillar   will only earn the mandated rate (curently something like 3%) whereas 3rd pillar can go into an investment fund.

I'm afraid this is all from memory but I'm reasonbly confident its correct.

Ok, I guess as this is my job I can try top help a bit there :)

So, 1st of all, what's probably the most important thing was correctly told by David, regarding taxes you'll be able to get the same % of deduction. Limit for 3rd pillar is 6'566 chf this year for 3a (prévoyance liée) , and as you've a C permit so fill a tax declaration you can also deduct 3b (prévoyance libre), max amount depending on your familly status, but minimum 2'200chf/year.

You can probably deduct a bit more in your second pillar, depending on your age, when you start working, your income, etc.

Now, for what's the most interresting, I unfortunately can't give you a clear answer if it's one option or the other. The reason is it's based on too many individual factors (like the ones I mentionned earlier, if you own a house or not, if and when you might leave switzerland, etc) and also the quality of your 3rd and 2nd pillars.

However, if you need more accurate answers you can contact me by sending me a private message there.

Rémy

Hi Kate,

This is a really important subject and it seems a lot of people are reading it.

David is right, the tax advantage is exactly the same, there is no immediate difference. However, I would argue that you should prioritise the 3rd pillar because these allowances are discrete.. they are NOT carried over to the following year. So each year, its a case of use 'em or lose 'em.

Conversely, you are free to make use of your 2nd pillar buy-backs whenever you want. Apart from variations in your insured salary, they wont change.

The return feehary refers to is actually 2% for 2010, but it is not a fixed return it is minimum return. The general point is correct though .. you would have to make buy back contributions to your current 2nd pillar provider, so if their investment choices or track-record is too conservative, then you might be better off investing personally, and claiming the tax relief later, when you get closer to retirement.

The maximum withholding tax levied on pension capital when leaving the country is around 14%. With planning, we can get this reduced to as little as 4%.

Phillip

And what i suspect is the real point of your question, as a US citizen:

1. Whether contributions made to either a 2nd or 3rd pillar scheme in Switzerland, resulting in  reduction in income tax, would be equally respected as 'deductible', by the US when submitting your tax return there.

2. Whether the cashing-out of either a 2nd or 3rd pillar (upon leaving the country, either to the US or to another country) would be treated by the US as capital /refund of contributions, rather than as 'taxable income'.

Sorry just to repeat the question, but for this, you really do need specialist and up to date, advice.

Hello all,

I believe that David is right, that repatriation would be the same as it work under the same law. OPP.

As Remy says below with the 3rd pilar you have an annual maximum that is CHF 6566 plus CHF 2200 for C permit. when you would like to save more than this then you do buy back (by using the 3rd pilar)

Basically the buy back amount you are allow is depending of your age. Some studies have been done showing that is more interesting to have some money saved at 3,4% on the 3rd pilar and use this money to do a bigger buy back closer to the retirement age (where the amount you can put in is bigger and your marginal tax rate is higher).

I hope this help, I would be happy to answer some questions privately on this subject

Fanny

It is not clear to me after the Sept 2009 tax agreement between US and Switzerland if the 3rd pillar is taxable in the USA.

The text of the tax agreement signed in September 2009 can be seen at:
http://www.pwc.ch/user_content/edito...mending_us.pdf

From my reading of this, it will mean that 3a pillar will no longer need to be reported to the IRS for tax purposes. The account, will need to be declared per requirements that US citizens FBAR report all accounts whose total balance is above $10,000.

The Protocol contains a new version of Article 10(3) that expands the scope of beneficial owners entitled to the zero rate of withholding tax to include individual retirement savings plans that are set up in, and owned by a resident of, the other Contracting State. Dividends received from a controlled payor remain ineligible for the elimination of withholding tax under the Protocol. In addition, in order to be eligible for the zero rate of withholding under the Protocol's new version of Article 10(3), the competent authorities of the Contracting States must agree that the pension or other retirement arrangement, or individual retirement savings plan, would generally be recognized as such for tax purposes in the other Contracting State. Although the Protocol does not contain details as to how taxpayers are to substantiate their satisfaction of this requirement, it is likely that a Memorandum of Understanding or Exchange of Notes accompanying the Protocol will provide the necessary guidance.

Does anyone know if additional memorandum of understanding has been issued regarding the dividends from pension accounts and the fact that they no longer will need to be reported to IRS?'

 I can't find anyone who knows what is the US tax implications of 3rd Pillar after this newly signed tax agreement.  Any help is greatly appreciated.

Oh my gosh, thank you all so much! I'm just a school teacher with a very finite amount of money, so I am very conservative with my retirement stuff.  I think my pension earns a better rate of return (well, not last year or this year!) than my 3eme pilier.  I will probably divide between the two.  But, yeah, my concern was how the IRS would view the 3eme pilier when I go back to the States (because I'm sure it will happen at some point).  And since I can buy back years on my pension, I feel like I should.

Anyways, lots of stuff for me to think about! And I so appreciate all of you taking the time to think about this with me and provide some insight! Thank you, thank you, thank you!

You are all partially correct or totally correct in one way or another.

For pilier 3a you may contribute CHF 6'566, for employed persons without a pension fund OR up to 20% of income from employment: max. CHF 32'832 if you are self employed without a pilier 2 (LPP pension fund).  You should do this with a view to long term savings and taking it when you retire.  However, as Fanny will tell you at one of excellent presentations, you can tie this to a life insurance product with other tax and savings consequences, or choose a CD from a bank, or a conservative mutual fund.

The advantages of a buy back are that you can spread it over several years.  So first you fill up the pilier 3 pot and then use anything spare to buy back into pilier 2 via a pension fund.

But, a lot depends on your long term plans, if you think you will need the money, etc etc.