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Old 10.03.2017, 08:42
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Pensionskasse - Buy-in to optimize Tax / Mortgage?

Hello
I have a question regarding using 2nd pillar to for financing property
(The "thread 2nd pillar to amortise property" gives basic information which I have understood).

I am thinking of the following scenario
1. I buy-in into the Pensionskasse ("Freiwilliger Einkauf"), say 10 KCHF every year for the next 5 years.
2. I therefore reduce my taxable income by 10 KCHF every year.
3. After 5 years, I withdraw the 50 KCHF which I contributed voluntarily and use it to reduce my property mortgage - this way I am not really penalizing my pension-pot in any way...

Tax-wise would I be better off, or would the withdrawal tax be more-or-less comparable to the yearly tax saving?


I am of the opinion that strategy for 3a makes a lot of sense, but not sure if it is also a good idea for the "Freiwilliger Einkauf" option.
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Old 10.03.2017, 09:00
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

You should not withdraw for 3 years after the last payment, or you risk having the deduction annulated. Withdrawal tax is about 5%, unless you approach high 6 - 7 figures. It's much smaller than the tax savings which are jsut your marginal tax rate (easily 30-40% for a high earner). But the difference is generously compensated by atrociously low returns that pension funds generate. Short term the play on tax differences may be worth it, long term not really.

Using the money to reduce the mortgage would make sense only if your post-tax mortgage interest is higher than pension fund's annual return rate. Better idea: plan to sell the house in 3-5 years, buy in just enough to be able to buy something bigger and withdraw maximum possible 10% downpayment from the fund. Don't forget to request capital gains tax to be postponed on the sale - this is practically free money.
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Old 10.03.2017, 09:02
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

There is a slight catch - if you make a voluntary contribution to the second pillar, you cannot withdraw it for 3 years. So, in your scenario, after 5 years of 10K contribution each year you can only withdraw 20K. You can only get the whole amount of 50K 3 years later.
From tax perspective, it works out the same as 3rd pillar -> the taxation on the withdrawn amount is lower than normal income tax (assuming you have decent income).
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Old 10.03.2017, 09:15
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

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There is a slight catch - if you make a voluntary contribution to the second pillar, you cannot withdraw it for 3 years. So, in your scenario, after 5 years of 10K contribution each year you can only withdraw 20K.
Wrong. You can withdraw 0 in this case. Federal court's decision: a buy-in blocks everything in the fund for the next 3 years, not just the voluntarily paid part.
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Old 10.03.2017, 09:39
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

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Wrong. You can withdraw 0 in this case. Federal court's decision: a buy-in blocks everything in the fund for the next 3 years, not just the voluntarily paid part.
Not according to the Pension Fund of Novartis for example (https://www.pensionskassen-novartis....ome-ownership/)
They clearly allow withdrawal for home ownership - excl. the amount of voluntary contributions made in last 3 years.
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Old 10.03.2017, 09:47
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

It's not the pension fund you need to be afraid of - they will pay out if you ask; but the tax authorities who may recondider your earlier buy-ins as tax evasion and send you the bill for missed taxes.

https://www.steueramt.zh.ch/internet..._bvg_2015.html
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Old 10.03.2017, 09:50
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

And how do they make sure that the Franken you put in is not the Franken you pull out?

Easiest option would be ivan's sollution, just block everything.
Other option is you can only withdraw as much as you had now-3 years.

Edit: According to ivan's above link the Pillar 2 is not a FIFO-Buffer but a Stack (A money stack if you wish ).
Means the Franken you put in last gets removed first and thus as to be normally taxed if it was on the stack for less than 3 years.
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Old 10.03.2017, 11:07
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

Indeed the pension fund is a LIFO stack (last-in first out). Every time I've paid into the fund and included the deduction in my taxes, I've received a clear notice from the tax authorities explaining the consequences of any withdrawal.
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Old 10.03.2017, 16:15
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

My employer's 2nd pillar pension found warned me that the 2nd pillar founds may also loose my money.
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Old 10.03.2017, 16:35
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

No shit, look at their favorite investment - negative yielding swiss bonds. Still you should be able to get at least what you paid, says Art 15-17 FZG.

Personally, I'm considering anything that can't generate a decent return, say, 3-5% in CHF, a money losing enterprise. The only thing offsetting their disastrous performance (my fund now pays just 0.25% on above BVG part) are tax savings - and only in a short term. Do not recommend. Pay the f'ing tax and buy some stocks or property.
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Old 10.03.2017, 17:03
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

Quote:
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Hello
I have a question regarding using 2nd pillar to for financing property
(The "thread 2nd pillar to amortise property" gives basic information which I have understood).

I am thinking of the following scenario
1. I buy-in into the Pensionskasse ("Freiwilliger Einkauf"), say 10 KCHF every year for the next 5 years.
2. I therefore reduce my taxable income by 10 KCHF every year.
3. After 5 years, I withdraw the 50 KCHF which I contributed voluntarily and use it to reduce my property mortgage - this way I am not really penalizing my pension-pot in any way...

Tax-wise would I be better off, or would the withdrawal tax be more-or-less comparable to the yearly tax saving?


I am of the opinion that strategy for 3a makes a lot of sense, but not sure if it is also a good idea for the "Freiwilliger Einkauf" option.
The only way to make advantage of the tax benefits of 2nd pillar buy-in IMHO: pay in a lump sum 3 (max 4) years before you plan to buy a house and then take it all out. 34% is probably the max you save on taxes (39% marginal tax rate, but about 5% is taken away when you cash it out).
But even then, your stock investment could bring a compound return of 34% in 3 years, but it could be a stretch as an investment horizon of 3 years is too short.

Also, keep in mind that by doing this, you can only use that money for self-occupied property!

So all-in-all: IMHO buying into the BVG is NEVER a good idea.
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Old 20.05.2017, 22:25
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

Because you guys are so knowledgeable about 2nd pillar, could you answer a simple question of mine?

If I buy into the 2nd pillar today, buy a house tomorrow and get a mortgage for 3 years, can I take out the 2nd pillar money then to pay back the mortgage without the tax office getting back at me?

Thanks!
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Old 20.05.2017, 23:50
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

Sure but it would've been much better to have paid in 3 years ago and withdraw the money now towards just a minimal downpayment. Your own capital is very expensive, whereas mortgage is dirt cheap money nowadays. You can have it from 0.4% post-tax interest, that's like, free, at the level of inflation.

After you pay back a part of the mortgage, banks will be rather unwilling to increase it again later
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Old 03.07.2021, 15:37
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Re: Pensionskasse - Buy-in to optimize Tax / Mortgage?

Re-opening this topic... I entered CH 3 years ago, and I have the option as a foreigner entering the BVG system to do the buy-ins. Question is, if these buy-ins go to the "obligatorisch" or "ueberobligatorisch" part of the BVG fund - which is quite interesting when we don't really plan to spend the rest of the live in Switzerland, but planning to leave to Austria in a few years.
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