Tax on retirement funds

Often neglected, taxes on the withdrawal of pension funds (called LPP or 2nd pillar) and/or tax deductible 3rd pillar plans (3a) will have an impact on your budget.

When withdrawing such funds, a federal, a state (canton) and a city tax will be charged. The tax is progressive and cumulative, meaning that the total amount between what has been withdrawn from your pension funds (LPP) and your tax deductible 3rd pillar plan for the same tax year will influence the taxes due. This tax is not linked to your taxable income but solely to the amount withdrawn.

Exemple :

A buyer, single, with no children, withdraws CHF 50k from is tax deductible 3rd pillar (3a) and CHF 120k from his pension funds (LPP) for the acquisition of his main residency. It is the total amount of CHF 170k that will be taxed.

Depending on the city, the taxes due could vary. Below, a few exemples :

 

Withdrawing of CHF 170k

Lausanne, VD

Tax due : 15’881 CHF

 

Withdrawing of 170k

Fribourg, FR

Tax due: 12’843 CHF

 

Withdrawing of 170k

Geneva, GE

Tax due: 9’960 CHF

Withdrawing of 170k

Sion, VS

Tax due: 9’087 CHF

An important detail to highlight is that the tax on the withdrawal will need to be paid through cash. This means you cannot use your pension funds and/or tax deductible 3rd pillar to pay it. A efficient way to avoid the tax is to pledge your pension funds and/or tax deductible 3rd pillar plan to the mortgage provider instead of withdrawing it.

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