Viac + Early Withdrawal

Hello everyone,

I (30M) going to begin to allocate money to a 3A fund for the first time. Thank to this blog/forum I discovered VIAC that seems to be the perfect option as my money will not rot away in a BCV 3A account. However, I have 2 doubts that I was not ablte to answer.

First, I might be leaving Switzerland in let’s 5 years or more. When the time to leave will come (if it ever comes…) I fear that it will be mandatory to withdraw my 3A. Thus, at the time being depending how it goes, I could actually lose money. The optimal solution would be to be able to leave Switzerland and withdraw my 3a when I want it. Of course, I couldn’t keep investing in it except for the compounded interest, but that’s fine for me. After some calls with advisers they confirmed me it was possible to do so, but I haven’t found anything written online about this matter. Does someone of you know something about this ?

Secondly, what strategy do you use for VIAC ? I am new to investing (I don’t even know about the rebalancing they’re talking about). In this context, I thought going with Global 100 instead and maybe later down the road, when I have more experiences, picking some ETF myself. If you have any book you recommend to start learning about investing in a mustachian way, I would gladly look into it.

Thanks 

Global 100 is the way to go. The effort of choosing your own ETF will probably not effect returns much.
I implemented a custom strategy with the goal of reducing the fees even further. So I tweaked another 0.01% of fees. However I will only see whether my strategy performs better in like 20 years or so. Thus, I cannot say that I would recommend doing it.

Regarding withdrawing and loosing money. The scenario when this would be the case would be that the global stock market tanked. This, of course, is possible - some would even say likely for the next 5 years. However, keep in mind that in such a case, also your non-3A-investements would have tanked. So when you get your money out of VIAC, just make sure to reinvest it again.
The “only” risk is the time that it takes for them to process your request. But given normal volatility this should not hurt you much. The absolute worst case would be if VIAC sold your investments on the worst day of a recession and then when the money reaches your account, the market has already recovered 20-30%. But this is a very unlikely event.

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Thank you for your answer.

But is it mandatory to withdraw your 3A even if you don’t want to ? Let’s say I leave Switzerland in 2025, is it possible to keep the existing 3A (without contributing to it of course) and withdraw it later when I want ?

No it’s not. You can keep it there till you turn 65.

As Cortana stated, you can keep your 3a assets in Switzerland after leaving. You won’t be able to add to them, and there would be no (tax) point in doing so anyway. That makes choosing a good growth solution (i.e. VIAC) important.

I was concerned that the CHF 480 non-resident fee from WIR may apply to VIAC as well. I ran this question by WIR and VIAC, and both confirmed that the non-resident fee does not apply to Terzo (the WIR pillar 3a foundation).

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A loss on the stock/bond market is a loss. Irrespective of whether and when you realize that loss (by selling the assets) or not. „Avoiding losses“ by simply refusing to sell an exchange-traded asset is a fallacy - as long as you’re free to sell and then reinvest the proceeds.

There might be tax consequences (of withdrawal) though - though of course generally less for a smaller amounts and/or losses.

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Thank you all for your answers. Much Appreciated.

A loss on the stock/bond market is a loss. Irrespective of whether and when you realize that loss (by selling the assets) or not. „Avoiding losses“ by simply refusing to sell an exchange-traded asset is a fallacy - as long as you’re free to sell and then reinvest the proceeds.
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How so ? I mean, I think it’s more a question of timing and flexibility. On the one hand, I have the obligation to withdraw my funds no matter the situation in 5 years. On the other, I have 35 years ahead of me to chose to do so.

Put the 3a money five years into VIAC with the Global100 strategy and then when you leave the country - just forget about VIAC. There is a high probability, that you will wake up 35 years later with a very nice surprise on your hand. :wink:

As I understand it, you can leave the money with VIAC, even when you left the country until 65 of age.

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One risk which you take by holding pillar 3a assets as opposed to holding assets in unbound investments is that you have a deadline (age 65) at which you have to withdraw, like it or not.

If your reaching retirement age just so happens to coincide with a major recession a la 2008, you will be forced to sell your securities before markets have time to recover. With unbound assets, you could simply hang ten until markets recover and then sell.

Most likely, markets will grow enough in the next 35 years that even a major recession near the end of the term won’t result in a capital loss, but it is a risk.

You can invest the withdrawn money a few days after the securities are sold from the 3a account.

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Say you‘ve contributed 100k to pillar 3a.
Assume the market (stock prices) will go down, so that when you‘ll leave Switzerland In 5 years and have to withdraw your pillar 3a, it‘s now only worth half of your original contributions: 50k.

Whether you have to withdraw your 3a at this point or not - what difference would it make? If you have to withdraw „early“, you can easily invest the money in the same/very similar funds or assets, at minimal transaction costs. If you do not have to withdraw, will they make greater gains than what you can invest on the open market? No, they won’t.

The main difference just the tax treatment of the earlier withdrawal itself, and the (possible) consequences on future capital appreciation and dividends. But this is a complex question and might go both ways.

You can invest the withdrawn money a few days after the securities are sold from the 3a account.

Agreed, but if your assets were unbound, you could invest them in recession-resistant assets or even short positions when the stock market just begins to go south. With the pillar 3a you would be limited to transferring to a pillar 3a account to avoid losses. My point was that by keeping your assets in the pillar 3a, you are restricted by pillar 3a rules, which can work against you.

I can think of arguments to keep your assets in the pillar 3a after leaving as well: bankruptcy protection, etc. On the whole though, if you can’t benefit from the tax deductions, the benefits are marginal.

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Remember that you can’t time the market

What are recession-resistant assets and what’s their expected return? How would you know that the markets are going south? How do you want to time that? What if you go short and markets recover from that day?

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Would not advice to forget it completely. Could be that this would be a taxable account in another country…

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I certainly do not believe I could time the market, but I do believe the less restrictions your assets are subjected to, the more flexibility you have in dealing with market fluctuations. When you entrust assets to a pillar 3a foundation, you are sacrificing some flexibility for tax privileges. The tax privileges generally make the sacrifices worthwhile.

But if you aren’t eligible for tax privileges (after moving to another country, for example), then it’s worth taking a hard look at the opportunity costs (over investing without the conservative limitations) and the possible pillar 3a management costs (i.e. Viac’s fee) compared to investing directly yourself.

The Swiss tax difference between withdrawing early and withdrawing at retirement is also relevant and would have to feature in the calculation.

While it’s hard to time for optimal performance or time of (dis)investment, you can easily exit the stock/bond market once you’ve reached your own personal investment target or threshold. For instance, once you‘ve reached that 1m for whatever figure you‘ve set for yourself. Unless you‘re locked into 3rd pillar or similar investments.

With the exception of life insurance policies, you can disinvest pillar 3a assets from funds and shift them to pillar 3a accounts. But that is your only option.

Thank you everyone for your answers, much appreciated and really interesting to have your inputs.

Could be that this would be a taxable account in another country…

Good point. As I still don’t know exactly where I’ll go, I have to take this risk.

The Swiss tax difference between withdrawing early and withdrawing at retirement is also relevant and would have to feature in the calculation.

I wasn’t aware there was a different treatment for the 3A if you withdrew it early.

After reading you guys, I am pondering whether to open this 3A. My major drawback is that I don’t know where I will be in 5 years (abroad or in still in Switzerland). Moreover, this year the tax deduction is almost 2K with a 3A which is good. However, next year, I will be married and my wife has no income yet (late student). Following my calculation the tax deduction will be almost insignificant.

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