Disclaimer: At Albatross, we're your expert accountants, demystifying the labyrinth of taxes without the jargon. But remember, the info here may not be a one-size-fits-all for your situation. Reach out to us for the latest tailored advice.
If you’re required to file a Swiss tax return in Canton Vaud, here’s a tip: take advantage of the 3rd pillar A. It’s a simple and effective way to reduce your tax bill, yet many people still overlook this straightforward opportunity.
Pillar 3A offers more flexibility and simplicity than the pension buy-back system (which we’ll cover in a future article). So, let’s dive in!
What Is the 3rd Pillar?
Switzerland’s pension system has three components—or pillars:
- 1st Pillar: State pension
- 2nd Pillar: Employer pension fund
- 3rd Pillar: Private retirement savings
The 3rd pillar is all about building private savings for your future.
Who Should Consider Pillar 3A?
This applies to anyone filing a Swiss tax return, including both employees and self-employed individuals. It’s a smart way to plan for retirement while enjoying some serious tax benefits.
How Does It Work?
1. Contributions:
For 2024, the maximum contribution limits are:
- Employees: CHF 7,056 per year
- Self-Employed (without a pension fund): Limited to CHF 35,280 per year or maximum 20% of your net income is allowed.
Even small contributions can make a difference.
2. Deadline:
Payments must be made by December 31, 2024, to claim tax benefits for the year.
3. Example Savings:
A single individual in Lausanne earning CHF 90,000 annually (net salary) and contributing CHF 7,000 to a pillar 3A account could save approx. CHF 2,200 on taxes in the first year.
Additional Tax Advantages
- Exemptions During the Term: Savings in a 3A account are exempt from income and wealth taxes.
- Favorable Retirement Taxation: Upon withdrawal, the funds are taxed separately at a reduced rate.
When Can You Withdraw Your Savings?
Withdrawals are allowed under specific conditions:
- Leaving Switzerland permanently
- Purchasing a home
- Becoming self-employed
- Retirement
Note: Each situation comes with its own restrictions, so it’s best to verify your eligibility.
Looking Ahead: New in 2025
Starting in 2025/2026, you’ll be able to make subsequent payments into pillar 3A, as recently announced by the Federal Council. We’ll keep you updated as more details become available.
Why Start Now?
Even if you can’t max out your contributions, making small payments can still help reduce your tax liability while kick-starting your retirement savings.
At Albatross, we’re here to guide you through tax planning, including how to make the most of Switzerland’s pension system. Pillar 3A is just the tip of the iceberg when it comes to potential tax benefits—so let’s get started! Get in touch.
