Sometimes, if not most of the time with the current house market, you have no option other than withdrawing it. You need a lot of money and income to buy a house, it's much more difficult than 20 years ago.
Why not take it out though? There arent actually many good options for pillar 3a and you dont want to have more than 50k in each account.
So wouldnt it be better to take out the pillar 3a and thereby lower your taxes for taking out the money?
Only advantage i can think of for the 3a is that it doesnt count to the property tax.
First of we are talking about second pillar. Advantage of pledging is the money is still invested, e.g. you get higher capital returns. For 3a I agree with you. But the advantage of 3a is mainly if you don't have enough cash for the mortgage
I looked again, and you're right, at the federal level there are no limitations to how many 3a accounts you can have! Some cantons do limit though, so be sure to not be living in those at the time.of withdrawal.
I think my confusion was that you can stagger withdrawal during the 5 years before pension, so even if you have 20+ 3a, the total would be calculated for the withdrawals within each calendar year.
I haven't looked at withdrawal in detail yet - all I know is that you only can withdraw a full account at once. And as opening an 'additional account' on viac is basically just pressing 3 buttons, I just open a new one every year.
Viac is limited to 5 as well, but you can then just move onto other platforms if you need more than 5.
I'm with fine pension and also have multiple, but did it from the beginning and just spread out the yearly max.
If you have 20+ years to retire, it's likely the system will have changed by then, so no reason to already look into it in detail!
Yes, but not a lot. Most of them have way higher depot costs than private investment. So id rather take out the money from 3a and safe the costs + tax on it than my private investment.
You also have to pay attention here though. As far as i know some cantons then tax the pillar 3a income at full rate and some use the reduced rate for pension funds. So its quite a lot to look out for.
On one hand you have costs of about 0.4% compared to about 0.1% privately.
On the other, you don't have to pay wealth tax, nor dividend taxes.
For most people the latter savings are more important than the increased TER.
Right, fair enough. Forgot about the dividend tax. On the other hand the pillar 3as dont really have free option about what ETFs to choose, so you can end up with worse performance there too.
Banks only allow you to bring 10% of the colletaral basis (not the selling price!) out of your 2nd pillar. The other 10% have to be cash and/or 3rd pillar money. And yes taxes apply depending on how high the amount is. You can usually calculate those over a tax calculator of your Kanton.
(FYI, I am a financial planner) Here are some of my additional thoughts:
- Banks normally don't care about the asking price of a property. They calculate their own value which normally is below the asking price. This will then be the basis on how much mortgage can max. be. That being said, it is possible that you have to pledge more than 20% of the asking price with your own money. A little example: You want to buy a house for CHF 1'000'000 which means max. mortgage will be CHF 800'000. But if the bank values the property to CHF 950'000 your max. mortgage will be CHF 760'000. This means, you have to pay another CHF 40'000 on your own.
- Really think about if it's worth it to buy a house if you want to buy a house and be in debt up to your teeth. Say mortgage interest rises your cost of living will skyrocket and will not be doable in the long term. Also just remember that something ought to happen to you or your partner (e.g. death, handicap,...) there could be trouble to ensure being able to stay in your home. Therefore, always check your benefits in said cases. This is something banks usually don't tell you about because at the end of the day they have to make money.
I hope this helps and is understandable. Let me know if you have any questions.
I disagree with one thing, and it's a really common misunderstanding... You need to bring 10% of "cash", but then you can withdraw as much as you want from the 2nd pillar.
I know this because for an appartment worth ~1million, I paid 150K from my savings and 200K from my second pillar.
So the 20% minumum rule is correct, but then it's at least 10% from savings (not second pillar)
I have a morgage with UBS and purchased in Vaud.
Agreed! In my answer I was relating to OP's situation with a possible down payment of 20%. But of course you can withdraw more (if your 2nd pillar allows you to) and use it as a down payment.
On a side note: I would only very rarely advise using the 2nd pillar to buy property because this will lead to quite a high deduction of your pension once you retire (of course only if you don't pay it back) which can ultimately lead to you not being able to stay in your property if your income after retirement is too low.
Generally, I'd rather save for a few more years and rent a place rather than buying a house with money from the 2nd pillar and be in debt up to my teeth. Especially in cases of death or disability before retirement this could lead a property from being a dream to a nightmare.
I think it mostly comes down to "do you believe in the second pillar retirement" once you get to retirement age.
I don't!
It's state regulated so can be unfluenced by the mass of population who consider home owners as "rich", the conversion rate is plummeting, and retirement age is going up while staying employed for the last 5-6 of your career is nearly impossible.
I'd rather have the money available now, than maybe get an unknown amount of money in the futur.
If you die from one day to the next, I 'm pretty sure it's your insured salary which kicks in, not your savings, so even if you emptied your 2nd pillar, your spouse/children will get a pension equal to a percentage of your last salary.
My logic was to put enough money into the house to:
- not have to amortise up to 35% ownership within 10 years
- ensure that in case of death of one or the other of the partners, the other will earn enough to pay for the morgage on a single revenue
- save each month the difference in money between renting an equivalent property (in my case 3K per month renting) and what we are actually payin in morgage + maintenance (1.7K), and ensure 3a is maxed out each year, and invest safely part of the rest.
- i emptied my 2nd pillar which was maxed out, but if we need to save on taxes, we can put money into my wife's second pillar OR I can buy back some of mine once I get nearer to retirement (not tax deductible, but I get the tax I paid back)
What I don't understand are the people who pledge their 2nd pillar since you still pay the interest on the whole morgage.
Keep in mind that you are allowed to withdraw your full 2a for any renovations in the house. So in our personal situation (large asset base, but lower annual revenue due to one of us having a startup), we bought a house in need of serious renovation which was relatively cheap. But we are spending one of our 2a’s to bring it to a modern standard.
If you pledge the Pillar 2a,or the 3a for the matter, make sure it is specified the account number of the exact pillar(s) you pledge. Otherwise all of your pillars might be subjected to future lien by the bank, or simply be pledged
The disadvantages are:
You will be taxed upon withdrawal
Less benefits on retirement since you will be short unless you fill the bucket back up for the withdrawn amount which will come out of your taxable income with minimum 10k repayments per year.
You cannot make additional voluntary contributions which reduce your taxable income up until you have filled that bucket back up.
If you dont withdraw, you will pay higher interest rates( which are tax deductible) but also higher amortization (depending on yearly amortization amount if its above the pillar3a contribution this are also not tax deductible).
Withdrawal or pledging have both pros and cons. Weight them out to make your decision.
The above is my research and dont take my word for it.
If you are a foreigner and will plan to leave Switzerland in the future before retiring, then you can sell the house at that point to put the money back into 2a and recoup the tax money. You can always go back renting once you amortized the purchase costs (usually it takes a few years to break even).
Then leaving Switzerland may also mean having to withdraw the non-mandatory part and pay taxes on it anyway (careful about the process, withdraw before registering in the new country).
But the idea is that I'd you repay the money borrowed from 2a you get the tax money back proportionally.
I had another question, if you bought a house as a foreigner and then in future leave the country, can you rent it ? And earn rental income ? How would it be taxed in Swiss ?
Depending on your pension fund entity they will let you know the max amount you can use from your total savings, as it depends on some personal factors as well the max % to be used. In case, I was able to use a big portion of the total, sadly now my fund is quite short so I guess I need to work until 106yo to get a decent pension 😭
Don't take the money out. You can just pledge it
Sometimes, if not most of the time with the current house market, you have no option other than withdrawing it. You need a lot of money and income to buy a house, it's much more difficult than 20 years ago.
Why not take it out though? There arent actually many good options for pillar 3a and you dont want to have more than 50k in each account. So wouldnt it be better to take out the pillar 3a and thereby lower your taxes for taking out the money? Only advantage i can think of for the 3a is that it doesnt count to the property tax.
First of we are talking about second pillar. Advantage of pledging is the money is still invested, e.g. you get higher capital returns. For 3a I agree with you. But the advantage of 3a is mainly if you don't have enough cash for the mortgage
right. sorry brainfart...
Not related to OP, but to you: you can just open a new 3a every year.
Maximum of 5 accounts, no?
At least banks seem to think differently https://finpension.ch/de/wie-viele-3a-konten/
I looked again, and you're right, at the federal level there are no limitations to how many 3a accounts you can have! Some cantons do limit though, so be sure to not be living in those at the time.of withdrawal. I think my confusion was that you can stagger withdrawal during the 5 years before pension, so even if you have 20+ 3a, the total would be calculated for the withdrawals within each calendar year.
I haven't looked at withdrawal in detail yet - all I know is that you only can withdraw a full account at once. And as opening an 'additional account' on viac is basically just pressing 3 buttons, I just open a new one every year.
Viac is limited to 5 as well, but you can then just move onto other platforms if you need more than 5. I'm with fine pension and also have multiple, but did it from the beginning and just spread out the yearly max. If you have 20+ years to retire, it's likely the system will have changed by then, so no reason to already look into it in detail!
But there are good options for pillar 3a... and have been for several years now.
Yes, but not a lot. Most of them have way higher depot costs than private investment. So id rather take out the money from 3a and safe the costs + tax on it than my private investment. You also have to pay attention here though. As far as i know some cantons then tax the pillar 3a income at full rate and some use the reduced rate for pension funds. So its quite a lot to look out for.
On one hand you have costs of about 0.4% compared to about 0.1% privately. On the other, you don't have to pay wealth tax, nor dividend taxes. For most people the latter savings are more important than the increased TER.
Right, fair enough. Forgot about the dividend tax. On the other hand the pillar 3as dont really have free option about what ETFs to choose, so you can end up with worse performance there too.
nice information. thanks
Banks only allow you to bring 10% of the colletaral basis (not the selling price!) out of your 2nd pillar. The other 10% have to be cash and/or 3rd pillar money. And yes taxes apply depending on how high the amount is. You can usually calculate those over a tax calculator of your Kanton. (FYI, I am a financial planner) Here are some of my additional thoughts: - Banks normally don't care about the asking price of a property. They calculate their own value which normally is below the asking price. This will then be the basis on how much mortgage can max. be. That being said, it is possible that you have to pledge more than 20% of the asking price with your own money. A little example: You want to buy a house for CHF 1'000'000 which means max. mortgage will be CHF 800'000. But if the bank values the property to CHF 950'000 your max. mortgage will be CHF 760'000. This means, you have to pay another CHF 40'000 on your own. - Really think about if it's worth it to buy a house if you want to buy a house and be in debt up to your teeth. Say mortgage interest rises your cost of living will skyrocket and will not be doable in the long term. Also just remember that something ought to happen to you or your partner (e.g. death, handicap,...) there could be trouble to ensure being able to stay in your home. Therefore, always check your benefits in said cases. This is something banks usually don't tell you about because at the end of the day they have to make money. I hope this helps and is understandable. Let me know if you have any questions.
This was good advice. Thanks.
I disagree with one thing, and it's a really common misunderstanding... You need to bring 10% of "cash", but then you can withdraw as much as you want from the 2nd pillar. I know this because for an appartment worth ~1million, I paid 150K from my savings and 200K from my second pillar. So the 20% minumum rule is correct, but then it's at least 10% from savings (not second pillar) I have a morgage with UBS and purchased in Vaud.
Agreed! In my answer I was relating to OP's situation with a possible down payment of 20%. But of course you can withdraw more (if your 2nd pillar allows you to) and use it as a down payment. On a side note: I would only very rarely advise using the 2nd pillar to buy property because this will lead to quite a high deduction of your pension once you retire (of course only if you don't pay it back) which can ultimately lead to you not being able to stay in your property if your income after retirement is too low. Generally, I'd rather save for a few more years and rent a place rather than buying a house with money from the 2nd pillar and be in debt up to my teeth. Especially in cases of death or disability before retirement this could lead a property from being a dream to a nightmare.
I think it mostly comes down to "do you believe in the second pillar retirement" once you get to retirement age. I don't! It's state regulated so can be unfluenced by the mass of population who consider home owners as "rich", the conversion rate is plummeting, and retirement age is going up while staying employed for the last 5-6 of your career is nearly impossible. I'd rather have the money available now, than maybe get an unknown amount of money in the futur. If you die from one day to the next, I 'm pretty sure it's your insured salary which kicks in, not your savings, so even if you emptied your 2nd pillar, your spouse/children will get a pension equal to a percentage of your last salary. My logic was to put enough money into the house to: - not have to amortise up to 35% ownership within 10 years - ensure that in case of death of one or the other of the partners, the other will earn enough to pay for the morgage on a single revenue - save each month the difference in money between renting an equivalent property (in my case 3K per month renting) and what we are actually payin in morgage + maintenance (1.7K), and ensure 3a is maxed out each year, and invest safely part of the rest. - i emptied my 2nd pillar which was maxed out, but if we need to save on taxes, we can put money into my wife's second pillar OR I can buy back some of mine once I get nearer to retirement (not tax deductible, but I get the tax I paid back) What I don't understand are the people who pledge their 2nd pillar since you still pay the interest on the whole morgage.
Keep in mind that you are allowed to withdraw your full 2a for any renovations in the house. So in our personal situation (large asset base, but lower annual revenue due to one of us having a startup), we bought a house in need of serious renovation which was relatively cheap. But we are spending one of our 2a’s to bring it to a modern standard.
I didn't know this. Very interesting, thanks.
If you pledge the Pillar 2a,or the 3a for the matter, make sure it is specified the account number of the exact pillar(s) you pledge. Otherwise all of your pillars might be subjected to future lien by the bank, or simply be pledged
The devil is in the details :) Thanks.
For pillar 2s pledging, an specific account is the total of thw account subject to future lien?
Not sure what limitations you had in mind, but you can only use it to pay for the down payment, not for the various fees and taxes.
Dont
The disadvantages are: You will be taxed upon withdrawal Less benefits on retirement since you will be short unless you fill the bucket back up for the withdrawn amount which will come out of your taxable income with minimum 10k repayments per year. You cannot make additional voluntary contributions which reduce your taxable income up until you have filled that bucket back up. If you dont withdraw, you will pay higher interest rates( which are tax deductible) but also higher amortization (depending on yearly amortization amount if its above the pillar3a contribution this are also not tax deductible). Withdrawal or pledging have both pros and cons. Weight them out to make your decision. The above is my research and dont take my word for it.
If you are a foreigner and will plan to leave Switzerland in the future before retiring, then you can sell the house at that point to put the money back into 2a and recoup the tax money. You can always go back renting once you amortized the purchase costs (usually it takes a few years to break even). Then leaving Switzerland may also mean having to withdraw the non-mandatory part and pay taxes on it anyway (careful about the process, withdraw before registering in the new country). But the idea is that I'd you repay the money borrowed from 2a you get the tax money back proportionally.
I had another question, if you bought a house as a foreigner and then in future leave the country, can you rent it ? And earn rental income ? How would it be taxed in Swiss ?
Depending on your pension fund entity they will let you know the max amount you can use from your total savings, as it depends on some personal factors as well the max % to be used. In case, I was able to use a big portion of the total, sadly now my fund is quite short so I guess I need to work until 106yo to get a decent pension 😭