Right. But in my case I would not have all 3a money in VIAC. Some of the competitor allow you to invest on a daily basis, with a reaction time of 1 day. So VIAC couldn’t be used for that (as of today at least, who knows they might offer non-monthly rebalancings at some point)
Now you could of course argue: why choose any other 3a solution besides VIAC if it is more expensive than VIAC. But the point would be: it would only contain (emergency) cash - and only in the case of an emergency would that money be invested…
But yea, I have to go back to the drawing board (ie excel sheets) and calculate both cases exactly with taxes. Seems to be more delicate then I thought…
I’m going to try to give you a simple example that applies to Vaud:
A fortune of 250’000 CHF generates a taxable income of aprox 400 CHF in the tax return. Then you apply the cantonal/ communal coefficients (154.5 % + 68.5 %) and you end up having to pay approx 900 CHF (400 x 2.23).
That’s basically a 0.36% of 250’000 CHF so I’d rather have that in a tax free account.
For an employed person it takes a long time to get to those amounts in the 3a but if you’re a freelancer in the high bracket it might take you 7/8 years if you contribute the maximum amount.
Then add to that the dividend thing and the tax deductions (for a revenue of 250’000 and a full contribution of 33’000 CHF you could end up deducting 14’000 which is approx 5%) and it might be quite interesting.
A fortune of 250’000 CHF generates a taxable income of aprox 400 CHF in the tax return
Not 5000 CHF (assuming a modest 2% div yield)?
If you’re talking about wealth tax then you forgot to deduct 0.3% for “management”. It’s ok to deduct it even though IB doesn’t really charge you anything, no questions asked, no proofs required, it’s a pauschal deduction.
That’s basically a 0.36% of 250’000 CHF so I’d rather have that in a tax free account.
That pays 1% per year in interest? You don’t need a math phd to see which option is better in the long term. For a short term storage if you will leave Switzerland anyway it might be ok though. But try not to get taxed by your new country of residence or it may cost you even more
Absolutely. But don’t get me wrong: I’m by no means arguing against taking advantage of paying into 3a and having that money deducted from the income tax. I think that’s a great option to have, sure, absolutely.
My whole argument comes after you’ve payed money into 3a. It is at a point where the question is: where should you invest, in 3a or outside. And again, I see that as completely orthogonal to the question as to whether you should pay into 3a or not. These are 2 independent things. So in your example, sure, pay those 250’000 into 3a if you can do so. That’s not my point.
Then to ultimately decide where is it more economical to invest into mutual funds/etfs: inside 3a or outside 3a, we need to really compare into the very detail 3 things:
dividend tax: comparing ordinary income tax outside 3a vs Kapitalbezugssteuer inside 3a
wealth tax: comparing orginary wealth tax outside 3a vs, again, Kapitalbezugssteuer inside 3a. I think this point is actually a big argument to not invest in 3a. As 3a is actually the only place in existance today (2019) where Switzerland has in fact a Capital Gain Tax!
investment cost/courtage/deposit fee of 3a investments (eg VIAC) vs outside (eg IB)
I’m not a financial guy so my terms are for sure wrong.
Let me rephrase: for a fortune of 250’000 CHF you end up paying to the taxman 900 CHF which is a 0.36%. That’s not really far from the management fee of VIAC (0.53%)
However that’s not really much, the important thing is the tax deduction indicated above.
I find the 3a account plus VIAC extremely interesting.
Note I’m getting to these numbers by using VaudTax directly.
You don’t pay wealth tax in 3a, right, but you pay Kapitalbezugssteuer on Capital Gain instead! Something which you don’t when outside of 3a. So the dividend gain you get inside 3a would have to be compared with the capital gain tax loss inside 3a.
But anyway, as mentioned earlier, I’m not arguing against putting money into 3a. I see that as a given and do it myself too. I’m only trying to find the best place to keep emergency cash after all the money has been payed into 3a that I want. And yes, it sounds weird to have emergency cash in 3a - but you can shuffle investments within 1 day and magically have it available outside of 3a. So it really just boils down to where is it more economical.
Yes that’s the deal with 3a: you can deduct it from income when you pay in, but you pay Kapitalbezugssteuer when you pay out. So it’s still a gain overall. Just that this introduces the nasty side-effect that capital gain is now taxed as well.
And yes, splitting 3a accounts has some effect - highly depends on canton too
Ok, so here’s one sample calculation of the tax advantage which pillar-3a has over non-3a.
TL;DR: in this very example 3a would indeed be 0.2% cheaper (due to taxes) than non-3a. Or put the other way round: 3a can be up to 0.2% more expensive and still be economical.
PS: I know, if you choose different numbers you end up with a different result … but be kind, it’s just an example
Assumptions:
100’000.- in assets, 2.5% dividend, 2% capital gain, 20 year investment horizon
within 3a: 6% Kapitalbezugssteuer, TER: 0.6%
outside 3a: 15% income tax, 0.33% Wealth tax, TER 0.4%, 0.045% gain due to income tax deduction (0.3% Portfoliomanagement deduction at 15% tax)
Within 3a:
holding cash in 3a:
0.3% interest for 20 years => 106174, minus 6% Kapitalbezugssteuer => 99’804
invested in 3a:
2.5% dividend + 2% capital gain - 0.60% TER = 3.90%
(100’000+3.90%)^20 = 214;937
214’937 minus 6% Kapitalbezugssteuer = 202’041
investment gain vs cash in 3a: 102’237
Outside 3a:
holding cash outside 3a:
no interest, 0.33% wealth tax minus 300.- CHF income tax deduction => -0.285% loss per year, at 20 years => 94’452
invested outside 3a:
2.5% dividend - 15% income tax = 2.125%, plus 2% capital gain, minus 0.4% TER, minus 0.285% wealth tax = 3.44%
(100’000+3.44%)^20 = 196’685
investment gain vs cash outside 3a: 102’233
Long story short: with 0.6% TER in 3a you get about the same investment result as with 0.4% outside 3a after 20 years (in this 1 example).
I know this is a ridiculous attempt at forcing an almost impossible comparison between 3a and non-3a where there are so many variables (tax bracket, canton, market fluctuation, future tax law changes, etc etc) - but still, I think it might give some small hint at what tax advantage 3a might have. So it seems the taxing of the Kapitalbezugssteuer is rather balanced when it comes to the advantages of not taxing dividends directly (thus longer compounding) vs capital gain and dividend tax in the end… interesting
Please review and criticise the calculation at your pleasure!
You should also take the opportunity cost into account that the tax saving of 3a actually allows you to invest more outside 3a as well. (e.g. Instead of investing 6700 outside of 3a you could invest 6700 in 3a + ~1200 outside 3a)
No. That was the whole point of the comparison. I calculate total cost inside and outside 3a. This is independent of whether you pay into 3a.
Let me make another example: you have 50’000 in 3a and 150’000 outside and decide to keep 50’000 in cash for emergency. This is after you paid into 3a already. Now you can either keep 50’000 cash outside of 3a or inside. And my calculation is an attempt at proofing that it is more efficient to keep the cash inside 3a, since even with the 0.2% more efficiency inside 3a the cheapest option (Viac with 0.5% TER) is 0.3% and you can go cheaper than 0.3% outside 3a (eg VT on IB at 0.12%). Mind you that the cash inside 3a gets higher interest too, so the overall advantage of cash in 3a is sth like 0.3%.
Now the problem is that you might have more in 3a than you want to keep in cash. Fine. Then invest the rest in 3a, sure. But don’t have much longterm/emergency cash outside of 3a
Or in other words: even when looking at the overall tax effects (eg the tax free dividends etc) all current swiss investment offers within 3a (including the seemingly cheap Viac) are more expensive than offers outside 3a. So use sparingly.
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