Why multiple pillar 3a accounts can save you thousands

Contributing to a Pillar 3a account is a cornerstone of smart retirement planning in Switzerland. It allows you to save for your future while reducing your annual taxable income. However, many people overlook a simple strategy that can dramatically increase their savings: opening more than one 3a account. This article explains why splitting your 3a assets is one of the most effective financial decisions you can make.

The problem: progressive taxation on withdrawals

When you reach retirement, the capital you've accumulated in your Pillar 3a is paid out as a lump sum. This withdrawal is subject to a capital gains tax, which is separate from your regular income tax but is progressive. In simple terms, the larger the amount you withdraw in a single year, the higher the percentage of tax you pay on it.

If all your retirement savings are in a single 3a account, you must withdraw the entire amount at once. A large, single withdrawal can push you into a much higher tax bracket, resulting in a substantial tax bill that eats into your hard-earned retirement funds.

The solution: staggered withdrawals with multiple accounts

The key to minimizing this tax burden is to stagger your withdrawals over several years. By having multiple 3a accounts, you can withdraw one account per year in the years leading up to and following your official retirement.

For example, instead of withdrawing CHF 250,000 from one account in a single year, you could withdraw CHF 50,000 from five different accounts over five separate years. Each smaller withdrawal is taxed at a much lower rate, and the combined tax paid over the five years can be thousands, or even tens of thousands, of francs less than the tax on a single large withdrawal.

Key benefits of splitting your 3a savings

While tax optimization is the primary advantage, there are other benefits.

Significant tax savings

This is the main reason. By breaking tax progression, you keep more of your money. The savings can be substantial, depending on your canton of residence and the total amount saved.

Increased flexibility

You can access parts of your capital as needed. For instance, you could withdraw the funds from one account to purchase a home while leaving the others to continue growing for retirement.

Diversified investment strategies

Having multiple accounts, potentially with different providers, allows you to pursue different investment strategies. You could have one account with a conservative, low-risk strategy and another with a higher equity share for greater growth potential.

Enhanced depositor protection

Your cash savings are protected up to CHF 100,000 per depositor and bank. Spreading your assets across accounts at different banking institutions can increase your overall protection.

How many 3a accounts should you have?

There's a sweet spot. While there's no legal limit, financial experts generally recommend having between two and five Pillar 3a accounts.

• A good rule of thumb is to open a new account once an existing one reaches approximately CHF 50'000.
• Alternatively, you could decide to open a new account every 3 to 5 years.
• Opening more than five accounts can become administratively complex without offering significant additional tax benefits, as most cantons allow withdrawals to be spread over a five-year period around retirement.

Conclusion: a simple strategy with a big impact

Splitting your Pillar 3a savings is a straightforward and powerful strategy. It requires minimal effort to set up but provides significant tax advantages, greater flexibility, and better risk diversification. By opening your second 3a account early and continuing to add more as your savings grow, you put yourself in a much stronger financial position for retirement.