Lower my taxes by contributing to 2 pillar

Hello fellow Mustachians,

I’d like to get some help/opinions on my planed contributions to my 2. pillar “Überobligatorium” to lower my taxes.

My plan is to contribute to the 2. pillar this year in December around 25’000CHF and next year January around 45’000CHF, to lower my tax’s. I’ve already put in 20’000CHF last year.

After waiting 3 years starting the day of the last buy in, i will be able to take the money out again to pay back a part of my mortgage on my EFH, i have around 400’000CHF of mortgage on it,

But I’m not 100% sure how that works and if it is really a good move.

I’m aware of the following stuff that has to be considered:

  1. I will have to pay a tax on the amount i take out of the 2. pillar.
  2. I will have to pay back all the money that exceeds the “Überobligatorium” part.
  3. I will save about 30% of my taxes due to the contributions.
  4. The money will be locked exactly 3 years from the day of contribution.
  5. I get 1% intrest on the money while it’s in there.

I don’t know about those facts:

  1. Do i have to pay back as well all the money i took out of the “Überobligatorium”?
  2. What else do I miss? Why could it be considered as a bad idea?

I will add some numbers later if there is no unsolvable finding showing up.

Thanks in advance!

I think the main downside is the 3 year lockout period during which your money only earns 1%. And also you only earn the saved interest on the mortgage you pay off instead of potentially having it invested in the stock market (unless you have to pay that anyway).

That’s the absolute worst case.
A good portion of the time it can be well above that (depending on the fund of course). :slight_smile:

The 1% figure is given by the OP.

Thats just what it states in my “Pensionskassenausweis” so i think that Info should be valid :man_shrugging:

While all single steps are legal and possible the whole scheme is illegal tax evasion. And if I understand your situation correctly you have a high likelihood of being caught.

I’m not sure, isn’t financing home ownership an explicit goal of current pillar2 taxation?

Can always ask tax authorities directly in any case :grinning:

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IIRC, paying money in and then taking it out again immediately was viewed as abusive which is why the 3 year rule was introduced.

Have you already withdrawn money from pillar 2 when you bought the house? If so, buying into pillar 2 is not tax deductible until the previous withdrawal is paid back into pillar 2.

I assume you mean the mortgage with ‘pay back’. Yes, the full amount that you withdraw from pillar 2 has to be used for your primary home. It doesn’t matter whether the money came from the mandatory BVG or the “Überobligatorium”. And there is nothing beyond the “Überobligatorium” (ignoring 1e). Voluntary buy-in capital is treated the same as “Überobligatorium” accumulated from regular contributions.

… although eligible for refund of the tax originally paid on the withdrawal.

Well, there is the „BVG-Obligatorium“.

Sure, most people would consider that „below“ instead of „beyond“ and it runs counter to the term „Überobligatorium“ itself. But I guess it’s all a question of perspective? :wink:

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The potential tax savings are the primary factor in determining whether or not contributing to your pension fund with the goal of eventually withdrawing the money to finance your home makes financial sense. Those vary depending on your place of residence, civil status, and income.

Step 1: Calculate the potential tax savings
Step 2: Calculate other potential savings that could result from a lower taxable income (health insurance premium reductions, scholarships, etc.)
Step 3: Calculate the total interest you would earn from your pension on the voluntary contribution.
Step 4: Calculate the capital withdrawal tax you would pay when you withdraw the benefits to finance your home.
Step 5: Compare the potential savings plus interest (steps 1, 2, and 3) with the capital withdrawal tax to find the real return.
Step 6: Compare the real return with the potential returns you could get with other fixed-income investments (e.g. bonds, medium-term notes) outside of the pillar 2. If the real return achieved by contributing to your pension fund is higher than the potential return you could achieve with other fixed-income investments, than contributing to your pension fund makes more financial sense.

I would completely disregard non-fixed investments like stocks, ETFs, etc. because for that short investment term (3-years), the risk of making a loss is high.

Of course, there is also the option of using the money to pay off your mortgage immediately. In that case you have to compare the real return of using the pillar 2 with the amount you would save on interest charges by lowering your mortgage. Income and wealth taxes would also play a role here (lower deductions for interest and debt).

Some pension funds give you the option of pledging your pillar 2 assets towards financing your home instead of withdrawing them. If I’m not wrong, the 3-year waiting period does not apply in that case, because the money isn’t actually withdrawn. It may be worth checking whether your pension fund has that option.

Still looking for input? All are to my best knowledge, I have not validated them right now:

Yes, at a reduced rate. Check for your Kanton. For me it’s low, maybe 5% or less for these amounts.

No. Only in case you want to buy-in again in the future. Then you have to pay back the withdrawn amount first.
EDIT: Also when you sell your property

Isn’t it 3 years without buy-in? That would make it 4 years.

It could go up again with higher interests.

If you want to play safe, it’s a good idea. I did the same.
If your pillar 2 is in a bad place, they might be able to block withdrawals.

It’s not when you respect the 3 years waiting period.

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For me 4% on the first 400k.

I wonder if you can contribute on the last day of the year and withdraw on the first day of the year.

If you buy in in 2023 (e.g.today), you can withdraw in 2026 (e.g. November 2026).
There’s a three-year lock-in - but it doesn’t say calendars years.

Edit: “Only two full tax years are affected by the three-year blocking period.

Agreed, BVG states only years. Calendar years was my interpretation.
EDIT: My interpretation was wrong, it’s 3 years

Does it apply also if you leave Switzerland for a country outside the EU?

I always wondered whether it meant calendar year or not? The wroding just says years, but since taxes are done on a calendar years basis, it wouldn’t surprise me if the tax authorities tried to interpret it as calendar years.

I wondered if this was ever disputed in court and clarified that way.

Haven’t looked at it, but my understanding is that 3 years rule is not a some kind of law, but an internal rule of the tax office. So, they are free to interpret it as much as they want until challenged in a court.

P.S.: Wrong, it is actually a law.

I’d anticipate most pension funds contributions to happen in Nov/Dec so the difference would be at most one month :wink:

There are years where you can forecast that the pension fund will grant you a very high interest rate. In these scenarios, it makes sense to pay early. Example: I paid a decent amount in June '21, as I could already by then forecast that our pension fund would easily yield 4+%. Meaning that my buy-in got 4% from June to Dec '21.

This is another year where you can anticipate pension funds to pay in the range of 2.5% to 3.5% - hence, it would be a good idea to pay early…

MOST Pension Funds grant interest (on voluntary contributions) already from the day you made the payment.