How should Pillar 2 and Pillar 3 plans be reported on a U.S. tax return?
Unfortunately, contributions to Pillar 2 and Pillar 3 plans cannot be deducted and must be reported as income on a U.S. tax return.
There is some good news: because contributions to Pillar 2 and 3 plans are taxed, you won’t pay taxes later on when you withdraw money from these funds. Normally, once withdrawn, this money would be considered passive income and would not be included in the Foreign Earned Income Exclusion so you would owe tax on withdrawals. However, because the contributions are taxed when made, you will only owe tax on growth and this tax will be offset by Switzerland’s Foreign Tax Credit.
In this way double taxation is avoided, and, because you’re paying taxes on your plan now, you won’t have to worry about being taxed later.