US Americans in Switzerland: specific financial and tax issues

Taxes
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If you organize a meetup in the French part, you can count on me to participate! :slight_smile:

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I would join too for a meet up :grin:

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45

Hello everyone, and a happy new year to you all!

I have a question regarding contributions to the 3rd pillar. I came across information online suggesting that if I contribute to a 401k, Roth IRA, or IRA in the USA, I may be eligible for a tax deduction in Switzerland. This appears to be analogous to contributing to a 3rd pillar in Switzerland.

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That is a question with no straightforward answer. Yes, in some cases contributions to foreign benefit plans can be tax deductible if they are comparable to the Swiss solutions. And yes, a US 401k can be argued to be comparable to pillar 3a as individual retirement account. But this is not only handled differently by cantons, it also depends on your specific personal situation (where do you have income, in which country do you pay social security), so in many cantons this is case-by-case without a very clear ruleset.

I suggest to check your cantons tax regulations. By that I mean not the manual (Wegleitung) but the much more detailed tax book (Steuerbuch) and if you can’t find anything call your tax authority.

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47

Thank you very much for your detailed answer. I will check with my (Steuerbuch) here in Aargua and will share my findings.

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What did you end up doing? I have a similar situation, but I wonder if I have to declare the account at all for the interest and wealth tax. I came to the conclusion that it is equivalent to Säule 3a, so I don’t have to report all the stocks I have in the Roth IRA?

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I have contributed but I didn’t declare it. I still need to check with the conton tax office if it is possible to deduct from tax.
At the same time, I am not sure if it is worth it to declare, since I’m planning to contribute to both IRA and S-3a.

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Hi all.

I am a US citizen about to move to Switzerland for a job. I’ve been searching high and low for the answer to this question:

Does it still make sense to contribute to my Roth IRA in the US after moving to Switzerland?

I’m planning on staying in Switzerland through retirement, and it seems I can still contribute to Roth if I take the Foreign Tax Credit instead of FEIE.

However, if Switzerland (or the Canton I live in) will simply tax everything (contributions + gains) as income on distribution in retirement, it doesn’t seem like a good idea. I’ve already paid income taxes on it in Switzerland and then I’ll be paying income taxes on the same money again on withdrawal. Don’t want to be double taxed on the same money.

Fellow US citizens in Switzerland, what is your approach to your Roth IRA?

Thank you so much!

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Hi MP Forum -

Next year will be a low income tax year (compared to prior years) and I am looking into optimizing my 401k portfolio in the US. I am coming up against some tax related concerns / uncertainty and I am hoping others on this forum have some personal experience of the same.

I currently have less than 10% of my portfolio in a pre-tax 401k (low fees, invested in 90% equity). In the long term , post retirement age, I expect to either retire in Switzerland or in my home country (non-EU, in Asia).

Thought process: I am considering slowly converting my pre-tax 401k into Roth 401k - about 40k USD per year over the next few years. Intent is to reduce my tax burden during retirement (i.e. after 59.5 years in the case of US) as neither the principal nor the growth will be taxed at the time of withdrawal.

Questions:

  1. Any obvious or not-so-obvious flaws in this thought process?
  2. Another recommendation I have read is to withdraw the entire 401k and bear the penalty plus additional tax as I have no intention of returning to the US at any point in the future. Has anyone here done this?
  3. Tax considerations:
  • In my home country, any type of 401k withdrawal is considered taxable income.
  • I believe in Switzerland, pre-tax 401k withdrawals are considered tax exempt but Roth 401k withdrawals are considered taxable income even at retirement age. In such a scenario, the only advantage of Roth conversion I see is the possibility of savings on US taxes in the future due to changing tax brackets.
  • In that case, is it even worth pursuing this now?
  1. I have spoken to my cantonal tax authority to get some clarification on the taxation situation. They were unable to give me a straight answer and suggested that I go ahead and see how its treated when I file my taxes next…
  2. Any other options I should consider?

P.S. I currently do not file US taxes but do have DA-1 dividends and some bank interest from the US. I believe I would need to file a tax return if I convert my pre-tax 401k to Roth 401k.

Thanks in advance!

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How are 401k assets treated in regards to gap in the 2nd pillar that can be bought into? Would withdrawing the 401k and buying back into a Swiss 2nd pillar be an option?

Regardless, I think for such specific tax advice, the experience of specialized professionals may be worth the price depending on the size of the assets. With the caveat that my understanding is that tax offices have some discretion as to how they handle US retirement plans, so there may be differences from a Canton to another and the cantonal tax policy may change from now to the time of your retirement.

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53

Didn’t search too long but Tax treatment in Switzerland of US retirement plans seems like a 401k withdrawal would generally be taxed similar to pillar2 lump sum.

edit: after looking more at the article, I’m not sure what you’d gain by converting. If you’re staying in Switzerland (DTA says Switzerland gets to levy the tax), I think you should apply the same reasoning as buy-in/cashing out pillar2 (do you want to be taxed now and keep paying income tax on the growth of the Roth IRA, or delay the taxation and do the lump sum at retirement)

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Roth conversion is suboptimal for Switzerland retirement due to unfavorable tax treatment. Prioritize preserving traditional 401(k) assets while clarifying your retirement jurisdiction. Engage a cross-border financial planner to run location-specific tax simulations before proceeding.

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Thank you for the response @Wolverine and sorry for delay in engagement.

I have approached at least 4 different tax advisors in CH and none of them are interested in discussing further with me - despite my willingness to pay. Each of them is of the opinion that its not worth the hassle to dig into this topic.

I also called up my canton’s tax office and their suggestion is to go ahead and do the conversion in one particular year. When they review my tax return, they will figure out how to treat it – i.e. they understandably do not want to give me advise ahead of the actual conversion event :slight_smile:

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Thank you for the response @nabalzbhf and sorry for delay in engagement.

I came across the same article in my research and thats what I based my conclusion on - pre-tax 401k withdrawals (at or after retirement age) is considered tax exempt in Switzerland but Roth 401ks seem to be considered taxable even at or post retirement.

I am not entirely convinced of the benefit yet either.

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Thank you for the response @logitacher and sorry for delay in engagement.

This seems to be the case from what I’ve researched also.

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A swiss tax advisor is propably the wrong place to ask for global tax planning.

Here’s a list of companies which can definitely help you with that (albeit far from cheap):

  • EY
  • KMPG
  • PwC
  • Baker McKenzie
  • US TAX SERVICES AG (for US tax)
  • Thevoz & Partners (for US and global tax)

If you want a Swiss company

  • Riedweg & Partner
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Fair point…I’ll reach out to a couple of the companies you listed. Thank you, @logitacher