[Updated in 2024] Have a look: how much can you invest tax-free in the third pillar?

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It is worth noting that the calculation of income tax refunds for the third pillar is based on the calendar year. It doesn’t matter when or how many contributions you make. Therefore, you can calculate your total income for this year now and make contributions to the third pillar for the entire year or in the last month of the year.

The tax incentive will give your money considerable leverage.

You can use the tax incentive for saving up to 15% of your gross income in the third pillar. If you make contributions from your net income, you will receive an income tax refund on that amount in the spring. For those earning more than 40,000 euros before taxes, the maximum annual contribution to the third pillar is up to 6,000 euros

While there is no obstacle to saving more money in the third pillar, it is not sensible to do so. The reason is the logic behind the third pillar tax calculation – in the future, income tax will be automatically deducted from the pension payments, i.e. any money you have saved without receiving a tax refund will effectively be double-taxed when disbursed. The only difference is when you start withdrawing money as a fund pension, which is taxed at a 0% rate.

If you are not sure how much you have already contributed to third pillar pension funds this year, you can easily get an overview by logging into your account. If you have also invested in a third pillar insurance product, you should ask the insurance company for information.

To make the most of the income tax incentive, it is wise to review exactly what is included in your gross income and how much of your total income from different sources you can save in the third pillar.

Wages and allowances

People mainly save in the third pillar from their wages. If your wages are the same every month, it is easy to calculate the 15% contribution. You can use the calculator on the Tuleva website, which also considers the effect of the monthly tax-free income of 654 euros.

Suppose your wages have fluctuated during the year. In that case, it’s a good idea to check your income information on the Tax Office website (select “My income” from the “Registers and inquiries” menu) or ask the accountant at your workplace for exact information on the payments made in that calendar year.

It is important to note that cash-based accounting, i.e. the date of receipt of income applies in this case. If your December wages are paid to you within December, they count as this year’s income. If your December wages are paid in January, they count as next year’s income.

Attention! If your employer has also made contributions to the third pillar for you, these will be taken into account, too. Make sure that the total contributions made by your employer and by you do not exceed 15% of your annual gross income!

The most common state allowances to be taken into account for the third pillar are maternity leave benefit and the monthly parental benefit. As income tax is withheld on both these benefits (you can see this information at the tax office), they count towards your gross income for third-pillar purposes. On the other hand, the monthly child allowance of 60 euros is not included in the gross income calculation, because no income tax is withheld from it.

The most important thing is to understand whether income tax has been withheld from the money received. For example, royalties and other types of income and benefits subject to personal income tax also qualify as gross income. Whether or not social tax has been withheld is not relevant for third-pillar accounting.

Income from investments and rental income

Calculating your investment income is a little more complicated. Unlike wages and benefits, a large part of investment income is not visible to the tax office before the end of the year, and you have to check your investment income yourself.

The most common interest income that individuals receive comes from crowdfunding. To calculate how much you should additionally save in the third pillar, you need to retrieve an annual report or overview of the interest income earned from the relevant online environment. Using this information, you can calculate the 15% you can transfer to the third pillar. In your income table at the tax office, you will see any interest accrued on your bank deposits – that also counts as income!

If you rent out your personal property, your rental income should be easy to calculate if it’s the same amount every month. If you earn from short-term rent (such as Airbnb, Booking), you should obtain a statement of your earnings from the relevant web portal. It is also worth noting that the tax logic for long-term and short-term rent are different. In the case of one  long-term) a total of 16% and the other (short-term) is still 20%.

The situation with stocks is somewhat more complicated, as there are more tax nuances. If you have sold securities (stocks), these count toward your gross income only if you are not using an investment account system. If you have declared the account where you keep your stocks as an investment account, you cannot count this type of income for third-pillar purposes.

If you have received dividends on which the payer has withheld income tax in full, these do not count toward your gross income (for example, if you own a company and have paid dividends as the company owner).

According to the new dividend accounting rules, which allow for applying different tax rates (some dividends at 20% and others at 14%), the part of 14% dividends on which 7% is withheld for private individuals counts toward gross income. Dividends taxed at a lower rate are also taken into account when calculating the limit of the tax incentive. You should pay attention to the different tax rates here. Unfortunately, neither the Tax Office nor Pensionikeskus have provided clear instructions on how to calculate this type of income.


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