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Old 04.06.2015, 13:37
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Returning to the US - transferring or cashing out Swiss pension?

Hello everyone


I know there are many many threads concerning this topic but i have not really found the informtion I am looking for (or maybe i dont understand the lingo) and was hoping someone could help. I also am worried that the agreements between US/CH have changed in the past few years so I also wanted to confirm my understanding is correct/current for 2015.


I am a US citizen only. I am moving back to the US next month (I do not plan on returning to CH). I have a swiss penion. My company told me that i can either
1. Move it to a vested benefits account (i was told this would have to be with a Swiss bank as American banks dont offer this)
2. Cash it out


I dont really understand which is better, so here are my questions:
1. What are the advantages/disadvantages to cashing out vs moving to a vested benefits account (if possible)?
2. If i cash out while still a Swiss resident, and pay the swiss withholding tax, my company told me that I can have the US validate that i have returned and get reimbursed for the Swiss withholding tax. Now if i do this - will i then have to pay US income tax on this money instead?? (i figured it would be preferred to just pay the swiss tax and not US, or does it not matter as I will have to pay the difference between US/Swiss taxes to the US anyway at the end of the tax year)


Sorry if the questions sound confusing, i am clearly very confused. Thanks again for your help in advance!
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Old 04.06.2015, 14:16
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Re: Returning to the US - transferring or cashing out Swiss pension?

This may help:

https://www.bfm.admin.ch/dam/data/bf...zialvers-e.pdf

I doubt you'll find a Swiss bank who'll let you have a vested benefits account these days. You will not be able to withdraw the mandatory (OASI/DI - 1st pillar) part of the pension anyway as Switzerland has an agreement with the US.

Yes, you will have to pay US tax on it if you do cash it out.
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Old 04.06.2015, 15:46
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Re: Returning to the US - transferring or cashing out Swiss pension?

Do you really have to pay US tax on your pension plans if you've been reporting them properly? I have a Pillar 2 and 3a, and have been reporting both the employer contribution yearly. Serious question, as I'm also leaving for the US in two months (woo hoo!)
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Old 04.06.2015, 15:57
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Re: Returning to the US - transferring or cashing out Swiss pension?

Thanks @Medea. You are correct, i just got back from visiting UBS. They confirmed that no swiss bank will allow a US citizen to transfer pension pillar 2 or 3 into a "vested benefits account" if the US citizen is no longer a resident of CH. So the only option is to cash out.


@swiss_in_training thats a good question. i know it is reported every year in my Swiss salary statement, so i have been accounting for it correctly in my tax return - but do we need to notify when we cash out/are there further tax implications?
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Old 04.06.2015, 21:46
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Re: Returning to the US - transferring or cashing out Swiss pension?

Yeah, this. I feel like the major issue with Americans abroad is that there is relatively little information about how compliant we are. The advice I've read on online sources varies from "you're all good" to "you're in deep s##*." Okay, maybe not verbatim...

In any case, I'm looking into this as best as I can, so if/when I have some sort of guidance, I'll post. As naive as it sounds, I just can't believe that the tax laws were written specifically to attack Americans living abroad. At the same time, I'm fairly certain that a bit of planning is required to bypass unintended consequences of badly written tax laws.
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Old 04.06.2015, 22:13
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Re: Returning to the US - transferring or cashing out Swiss pension?

If I am not mistaken, you will have to pay taxes on the cash, based on the us tax bracket you fall under, minus the taxes you already paid in CH when you cashed out ....

You could also have UBS transfer the funds into a retirement acccount in the US, but then the money will be blocked, earning interest, until you retire and pay taxes at that point .... e.g. your 401K account .... Of course, none of the CH banks really like to discuss these things ... it's easier to tel the client to cash out, pay the CH taxes and leave dealing with the US taxes to the client (who is already gone

All the best ....
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Old 04.06.2015, 22:19
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Re: Returning to the US - transferring or cashing out Swiss pension?

I agree with what you are saying, the little of what is available in the legal documentation is difficult to decipher and people's personal opinion seems to be all over the place.


So i did some more research and got in touch with a CPA in the US. Part of the Swiss/US tax treaty of 1996, Article 18 is attached here. It basically says (to my understanding) that my pension should only be taxed in the country where I earned the wages, thus avoiding double taxation.


Based on this information, i will cash out my pension into my swiss bank account and pay the required swiss withholding tax. When i move, i will then transfer my swiss accounts to my US account, as required by law. When i file my US taxes for 2015 i will enter the lump sum cash out amount under "non-taxable income" based on the attached Article 18 statement. (I will also most likely try to get a CPA who is knowledgable in US/CH relations to file my taxes that year.)


I am doing this under the assumption that the swiss tax would be much less than the US tax. Tax here is based on what canton your pension is in i believe. I have heard that you can actually transfer your pension to a lower tax canton before cashing out, but i am not sure if that is an option for me at this point.


Now, the information my company's pension rep told me was the following:
  • A withholding tax will be deducted from the cash payment. A respective confirmation of the tax withheld will be issued and provided to you.
  • If you submit the document confirming the tax withheld to the tax authorities of your new country of residence (we understand this would be the US) for their signature, you can then send the signed document to the Basel Stadt tax authorities and based on relevant tax treaty, Swiss tax will be reimbursed to you.

Now where I am confused now is the last bullet point. I can get the tax withheld reimbursed??? I have a feeling I cant declare it as "non-taxable income" in the US AND ask for reimbursement from CH. Or can I??

The suspense is killing me, I cant possibly wait until next years tax return....



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Old 04.06.2015, 22:41
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Re: Returning to the US - transferring or cashing out Swiss pension?

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I doubt you'll find a Swiss bank who'll let you have a vested benefits account these days. You will not be able to withdraw the mandatory (OASI/DI - 1st pillar) part of the pension anyway as Switzerland has an agreement with the US.
I doubt getting a benefits account would be an issue because Swiss banks do not directly offer such a service under their banking licence - they simply recommend you to a foundation that provides the service.
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Old 04.06.2015, 22:46
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Re: Returning to the US - transferring or cashing out Swiss pension?

According to my US accountant ... if you get the money back, you will be subject to US taxes ...

Yes, you could ask that your funds be transferred to a lower tax kanton in CH, but I am not sure if you can do this (may depend on your permit / citizenship) ... I have done this successfully ... transferred from zurich to Schweiz ... but I also have a hobby of collecting passports ... ... if you want name/contact of a company in kt. schewiz, I have had success with, please PM me (you take all the risk .... )

Cheers ...
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Old 05.06.2015, 10:39
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Re: Returning to the US - transferring or cashing out Swiss pension?

From what I understand, if you have been properly reporting and paying tax on second pillar (applies to 3rd pillar as well) then this money has already been taxed by the IRS when contributed, as they do not consider it a pension per US tax rules. This assumes/means you should have been paying tax on yours and your employer contributions. However, investment earnings in the account would be taxed at withdrawal, but not the contributions which were already taxed.
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Old 05.06.2015, 13:29
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Re: Returning to the US - transferring or cashing out Swiss pension?

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From what I understand, if you have been properly reporting and paying tax on second pillar (applies to 3rd pillar as well) then this money has already been taxed by the IRS when contributed, as they do not consider it a pension per US tax rules. This assumes/means you should have been paying tax on yours and your employer contributions. However, investment earnings in the account would be taxed at withdrawal, but not the contributions which were already taxed.
Yes, this is also my understanding. From US tax perspective, contributions into Swiss pension scheme (on the employee side) are not deductible from taxable income and employer contributions also need to be added to taxable income.
That's why it does not make sense for US tax payers to make voluntary contributions into the 2nd or 3rd pillar here.
Based on this, it should not be a taxable income in the US any more. However, in Switzerland, at the time of payout, it is taxable income. The tax rate depends on the canton of residence (if remaining in CH) or on the canton of the domicile of the pension fund/foundation (if you are outside the US).
As a US citizen, you probably won't be able to take advantage of this as you would need to find a fund/foundation that will accept you and only then cash.

For non-US tax payers, the payout of the Swiss pension fund (or even transfer into the vested benefit account/fund/foundation) can be a taxable event in the case of move to another country. For example, from US perspective, if the transfer happens after the persons enters the US (assuming they will be taxpayer there), the value of the pension funds is considered taxable income from both Federal and State perspective.
Sometimes it is best to leave CH, go to another country for a week or two (during which the payout happens) and only then enter the US for work. That should at least eliminate the Federal Tax liability (unless the person already spent >10 (not sure about the exact date) days in the US during the same calendar year prior to arrival. State tax law varies .. some states (like NJ) do not consider partial year so it is always taxable income from their perspective. This does not apply to US citizens/green card holders as mentioned above.
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