Whether you are about to enjoy your retirement or are considering withdrawing your 3rd pillar to finance a personal project, the question arises: what amount is the tax payable upon withdrawal? This article aims to explain in detail the taxation linked to withdrawing from the 3rd pillar, thus offering you the keys to optimizing the withdrawal from your 3rd pillar.
How do you withdraw your 3rd pillar?
Before diving into the specifics of taxation linked to the 3rd pillar, it is essential to understand the circumstances allowing the withdrawal of these pension assets. The possibility of withdrawing funds from your 3rd pillar is intrinsically linked to the type of contract taken out, whether it is a 3rd pillar 3a linked or a free 3rd pillar 3b. The nature of your contract thus determines the terms and conditions of withdrawal, a fundamental aspect to consider before examining the tax implications of this transaction.
How do you withdraw your 3rd pillar linked to 3a?
Generally, the funds accumulated in a 3rd pillar 3a are intended for retirement, which is why it is called the “3rd linked pillar”
However, recognizing that life can present unexpected turns, legislators have introduced exceptions to this rule, allowing insured persons to draw on their 3rd pillar 3a in certain well-defined situations before reaching retirement age:
- At retirement age: It is the ordinary withdrawal from the 3rd pillar linked to 3a that is mainly planned for retirement. It is important to note that you have the flexibility to withdraw your capital up to five years before or five years after the legal retirement age.
- Real estate acquisition or financing: The use of your 3rd pillar is allowed to build up the equity needed to buy a main residence or to repay an existing mortgage via indirect amortization.
- Becoming self-employed: If you decide to start as a freelancer, your 3rd pillar can be withdrawn in order to start your business.
- Final departure from Switzerland: If you leave the country permanently, you can withdraw the funds accumulated in your 3rd pillar.
- Disability: If you become the holder of a 100% disability pension from AI, you have the right to withdraw the funds from your 3rd pillar.
- Repurchase of 2nd pillar years: It is possible to use the capital from your 3rd pillar to buy back years of contributions in your 2nd pillar. Please note that in this case no taxation applies.
- Transfer between contracts: Funds can be transferred from a linked 3rd pillar 3a to another. There is also no tax when transferring to another 3rd pillar.
These exceptions offer significant room for manoeuvre, allowing insured persons to better react to the vagaries of life while benefiting from the tax advantages of the 3rd pillar linked 3a.
How do you withdraw your 3rd free pillar 3b?
Flexibility is one of the major attractions of 3rd pillar 3b free, offering considerable freedom in managing and withdrawing funds. Unlike the 3rd pillar linked to 3a, which is governed by strict withdrawal rules, the 3rd free pillar 3b allows you to access your savings whenever you want, without having to justify a specific reason.
Taxation on the withdrawal of capital from a linked 3rd pillar 3a
The amount of tax payable upon withdrawal is influenced by several key factors:
- The canton of residence: Tax rates can vary considerably from canton to canton in Switzerland, which has a direct impact on the amount of tax due.
- Family situation: Your marital status and the number of children in your care are taken into account to determine the applicable tax rate.
- The amount of capital withdrawn: It is the main determinant of tax liability. The higher the amount accumulated and withdrawn, the higher the tax will be.
As you have understood, Tax is mostly determined based on how much you withdraw. In fact, withdrawing from the 3rd pillar is treated as exceptional income, so it is subject to income tax, but according to a significantly reduced scale, which corresponds to approximately 1/5 of that usually applied.
Below is a summary table of the tax rates applied according to the amount withdrawn and the canton of residence:
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Taxation on the withdrawal of capital from a free 3rd pillar 3b
There is no tax when withdrawing capital from a free 3rd pillar 3b.
However, it is important to note a specificity for cross-border workers. If you live in France and work in Switzerland, you are required to declare the amount withdrawn from your 3rd free pillar 3b in France.
Why calculate the tax on withdrawing from the 3rd pillar?
The prospect of withdrawing your 3rd pillar may seem remote, especially if you are still far from the retirement age, which is now set at 65 for men and women in Switzerland. However, prior planning is crucial, knowing that withdrawal can take place up to five years before or after this legal age and that it is also possible to withdraw the 3rd pillar under certain conditions.
Although the main attraction of the linked 3rd pillar 3a lies in these immediate tax advantages, it is essential not to limit yourself to this perspective alone. Understanding the tax impact at the time of withdrawal is just as crucial. There is a great temptation to focus only on the tax savings made during the contribution phase, but a complete vision requires also evaluating the tax due when the funds are released.
Calculating the withdrawal tax allows you to forecast the net amount you will receive and to adjust your pension plan accordingly. This becomes a lever for optimizing your taxation in the long term, thus ensuring that the benefits of the 3rd pillar are fully realized when you need them most, in retirement.
Is the 3rd pillar really attractive for tax purposes if I pay taxes at the time of withdrawal?
Are you wondering if by paying this withdrawal tax, your 3rd pillar is still fiscally advantageous? Luckily the answer is yes!
In fact, every year, by contributing to the 3rd pillar 3a, you benefit from a significant tax reduction. This annual savings add up over time, constituting a considerable sum until the time of withdrawal. The total amount then saved in taxes during the contribution period exceeds the tax payable upon withdrawal in any case, even with a high tax rate depending on the amount of capital or the canton in which you live.
Here is a concrete example to illustrate the tax advantage of the 3rd pillar 3a, even taking into account taxation at the time of withdrawal:
Annual savings in the 3rd pillar 3a: 6,000 CHF
Annual tax savings: 2,000 CHF
Duration of savings: 30 years
Calculation of the total tax savings over 30 years:
- Annual tax savings x Number of years = Total savings
- 2,000 CHF x 30 years = 60,000 CHF
Withdrawal tax calculation:
- Total accumulated capital = 6,000 CHF x 30 years = 180,000 CHF
- 8% withdrawal tax of 180,000 CHF = 14,400 CHF
Calculation of net savings after withdrawal:
- Total tax savings - Withdrawal tax = Net savings
- CHF 60,000 - CHF 14,400 = CHF 45'600
In the end, even after paying tax on the withdrawal, the person saves net of taxes of CHF 45,600 thanks to their 3rd pillar 3a. This demonstrates the fiscal effectiveness of savings in a 3rd pillar 3a, even considering the tax due at the time of withdrawal.
Do cross-border commuters pay tax if they withdraw from the 3rd pillar?
Indeed, cross-border workers who withdraw their 3rd pillar 3a are subject to taxation similar to that of Swiss residents, with a withholding tax by the Swiss tax authorities upon withdrawal. However, the tax procedure requires an additional step for them: they must declare this withdrawn amount to the French tax authorities, which will apply a tax rate of 6.75%.
To align tax obligations between the two countries and avoid double taxation, cross-border commuters must then request a correction of the Swiss tax collected at source. By providing proof of payment of tax in France, they can obtain a refund of the tax collected on the Swiss side. In the end, thanks to this correction mechanism, the total effective tax rate for cross-border workers on the withdrawal of the 3rd pillar is 6.75%, reflecting only the tax paid in France.
For the free 3rd pillar 3b, if you live in France and work in France and work in Switzerland, you are required to declare the amount withdrawn from your 3rd free pillar 3b in France.
How can I limit the amount of tax if I withdraw from the 3rd pillar?
To reduce the tax due when withdrawing from your 3rd pillar, you have a few options, although some are more practical than others. The first, changing canton to benefit from a more favorable tax rate, is impractical and rarely a viable solution for most people.
A more accessible method is to spread the withdrawal of your 3rd pillar assets over several calendar years. Since the tax rate is calculated annually, spreading the withdrawal over different years will reduce the overall amount of tax due. However, it is important to note that, at retirement age, it is not possible to partially withdraw a 3rd pillar: the withdrawal must be total.
The tip to optimize your tax situation is to subscribe to several 3rd pillar contracts, taking care not to exceed the maximum amount that can be deducted annually. By planning the withdrawal of each 3rd pillar in separate calendar years, you can significantly reduce the tax burden compared to a global withdrawal in one go. This strategy makes it possible to disperse tax over several periods, thus reducing the tax rate applied to each withdrawal bracket and optimizing your tax savings over the long term.
Conclusion: What is important to remember
The importance of strategic planning for managing your 3rd pillar cannot be underestimated, especially with regard to the tax implications at the time of withdrawal. While this article provided key information for understanding 3rd pillar taxation, each individual situation is different.
Consulting a financial advisor can make a significant difference in maximizing the benefits of your 3rd pillar. A professional can help you determine the most beneficial solutions based on your personal situation, accurately calculate the tax due at the time of withdrawal, and develop strategies for staggering and diversifying contracts to minimize your tax burden.
Whether you are considering subscribing to several 3rd pillars or planning your withdrawals over different calendar years, an advisor can guide you to the most beneficial decision, ensuring that your 3rd pillar best serves your long-term goals. In short, a well-advised approach is essential to optimize your tax savings and strengthen your financial security in retirement.
