Re: US citizen working in the CH- Taxes in CH and US and pension contributions in CH
Based on my own knowledge and online reserach when I moved here, the following seems to make sense for Swiss pension contribution for an American:
It depends on whehter you have US tax liability or not after taking the foreign income exclusion and th foreign tax credit (yes, you can take both, but if you've taken the income exlcusion first, the foreign tax credit is reduced proportionally).
Example 1: You contribute x% to pillar 2 and 0% to pillar 3. At the tax filing day, your US tax liabiliy > 0. In this case, you should try to reduce your contribution to pillar 2 (I know this may not always be possible as it depends on your employer's rules about pillar 2). But, generally speaking, the goal is for you to reduce your contribution to pillar 2 until you have no US tax liability. Of course, this may not always be possible, as the smallest x can be is 0. How does this work? Well, when you reduce your contribution to pillar 2, you will increase your tax in CH, which will give you more foreign tax credit which will then reduce your remaining tax liability to the US. (ps. It's not one to one though, this is just a simplified example!)
Example 2: You contribute x% to pillar 2 and 0% to pillar 3. At the tax filing day, your US tax liability is 0. In this case, you should try to reduce your CH tax liability (by contributing to pillar 3, as an example). However, keep in mind that reducing CH tax liability might increase US tax liablity.
The rationales... well, the main thing is that you don't want to be double taxed on the same $1 you earn. What am I talking about? Well, imagine the following scenario: let's say that you contribute CHF 1000.- into your pillar 3 account in CH. By doing so, these 1,000.- are not taxed in CH (pre-tax money). At tax filing day, you find out that you actually have US tax liablity to pay. You are effectively double taxed in this case now... BAD! Why? well, you contribution to pillar 3 is NOT tax deductible in your US tax return. Hence, that 1,000 is taxed now by the US. Then, when you leave CH or when you retire, since the 1,000 was pre-tax money, the CH government will now ask you to pay tax on the 1,000 when you withdraw the money. See how you've now just made yourself pay tax twice on the same money? This is why you would hear advice like "don't contribute to pillar 3" for Americans.
The long story short... You should probably only contribute to pillar 2 and pillar 3 if you don't have US tax liability remaining to be paid at the end of the day. If you owe tax to the US after doing your tax return, then in most cases whatever you put into pillar 2 or 3 will be double taxed - first now by the US, and then by the Swiss when you gain access to the money.
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