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Old 27.11.2007, 08:48
Richard Richard is offline
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Re: 3rd Pillar Pension Fund

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Very worth while conversation. Thanks for your contributions Richard!

This just came up in conversation between my wife and I yesterday in fact. She is not the best at explaining financial details, so I will be checking in to get the scoop. We just got married and are in the process of establishing our mutual finances, so this is very interesting to me.

Is the 3rd Pillar essentially the same thing as a 401k or Roth IRA?

I'm a little confused (after my swiss wife's explanation) in regards to Swiss retirement funds. She seemed to think that the Confederation would come after your 3rd Pillar if it is needed to fund some kind of assisted living situation that you incur later in life. Do you know this to be true?

Could the 3rd Pillar be some kind of amalgamate of IRA/401K/Social Security funds the way they are set up in the US?

Cheers,
Matt
Actually it is closest to the Roth IRA and nothing to do with a 401K. A Roth IRA allows tax free investment on taxed income. A 3rd pillar account allows tax free investment and is deductable against tax. However, unlike the Roth IRA the taxmen gets you when it is paid out. Its advantage is the way it is taxed. The Swiss allow you to use a 40% marginal rate. How does this work? Lets say you earn 100K per year and have a tax rate of 15%. The 15% means 15K in tax. If you have a pension fund captial payout ie cash it in they take 40% of the value and see what your rate would be on that. 40K income might attract 6% so your 100K cashed in pension be it 2nd or 3rd pillar would then be taxed at 6% ie 6K giving you a saving of 9K in taxes. Also note interest and dividends earned through a pension are free of tax until it is cashed in.

Jaudi answered the other questions most competently.
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