IRP, what is pension savings?
Two types of tax-advantaged pension accounts provide tax benefits when saving, This is a product that can be received as a pension after the age of 55. Depending on the securities company you sign up for, it may contain financial products or ETFs. Not only can you receive a tax refund at year-end tax settlement, but you can also avoid canceling in the middle of the year. If received as a pension, the tax on dividends and capital gains is not 15.6%. Pension income tax of 3.3 to 5.5% may be applied.
How are the two products different?
In the case of IRP, 9 million won regardless of income, In the case of pension savings, tax is deducted up to 6 million won.
IRP sets the risk asset limit at 70% to encourage account stability. There is no limit to pension savings.
In addition, the products handled vary depending on the management company. If there is a product you really want to incorporate, it is a good idea to look for it in advance.
How much should I fill?
Even if the tax refund limit of 9 million won is exceeded, tax benefits for dividends and capital gains are valid. However, in the case of domestic index ETFs, the advantage is small because there is no tax on capital gains. Additionally, there are restrictions on early withdrawal, so if you do not have enough savings, There is no need to meet the 18 million won limit.
Are there any restrictions on early withdrawal?
Considering early withdrawal, pension savings are advantageous. First of all, the tax deducted for both products must be returned. However, while there are no restrictions on withdrawal of pension savings, IRP is only possible if the requirements set by law are met.
1) Housing funds for those who do not own a home 2) Treatment for more than 6 months due to illness 3) Bankruptcy declaration or personal rehabilitation
If it is recognized as unavoidable as in 2) and 3) above, the benefit tax amount (3.3-5.5%) is applied when receiving pension. In case 1), other income tax of 16.5% is applied.
If there are no restrictions and pension savings do not meet the requirements set by law, Other income tax (penalty) of 16.5% must be paid.
Is it possible to sign up for both and get a tax deduction of 15 million won?
Deductions are managed by adding up the two accounts. The deduction limit is 9 million won per year, which is the deduction limit for IRP.
Therefore, if the salary is over 55 million won, 13.5% (1.188 million won) If the amount is less than 55 million won, you will receive a 16.5% (1.485 million won) tax refund.
Therefore, there is some freedom in terms of transactions and early withdrawals. Pay 6 million won to pension savings and the remaining 3 million won to IRP. You can pay according to the deduction limit of 9 million won.
Should I sign up without asking? It is somewhat ambiguous to unconditionally recommend paying 9 million won (or more) to those just starting out in society. This is because of the pension amount. (Let’s leave aside the fact that it is not easy to save 9 million won and the withdrawal penalty)
This is because if the pension amount exceeds 12 million won, comprehensive income tax is applied. Receiving 12 million won through IRP and pension savings alone is a small amount, but if it is large, it is a large amount. For example, assuming you join the company at the age of 30 and retire at the age of 55, if you meet the 9 million won limit each year, The principal amount is 243 million won. Assuming you put this into a 5% dividend ETF, If you receive only 1 million won per month to receive full tax benefits with an annual dividend of 12 million won, A sad situation unfolds where you can't even touch the principal.
Of course, profits for that period were not calculated. Just because it exceeds 12 million won does not mean that the advantages of pension savings and IRP completely disappear.
The actual tax rate applied is the time and period of pension receipt, It will vary depending on each individual’s tax deduction conditions and which tax item is selected. How much you invest overseas through ETFs, how much dividends you receive, etc. The pros and cons of taxes also vary depending on the investment style.
(General Review) So, should I sign up for the product or not
In particular, if you are a long-term investor in foreign index ETFs (S&P 500, NASDAQ), I definitely recommend it. There are restrictions and penalties until the age of 55, so there is no need to fill in the amount based only on tax returns. This is because the risk of excessively withdrawing the amount is high. However, it is heavily involved in comprehensive taxation of 12 million won and inevitable early withdrawal. There is no need to not sign up.
Even if it is returned, the refund amount of 13.2 to 16.5% is not a small amount. In the case of overseas ETFs, if IRP or pension savings are not used, a 15.6% tax on profits is required. Even if you receive a 16.5% penalty, it is not such a huge loss.
Also, even if there is a high probability that you will be subject to comprehensive taxation, Depending on conditions such as taxes and deductions, pension savings + IRP are likely to be advantageous. Regardless of taxes, it is important to consider that refunds + tax deferral on dividends and profits are significant benefits.
In fact, if you are wondering whether to join or not, there is a high probability that it will be advantageous to sign up. This is because it is never easy for an IRP + pension savings subscription to be large enough to affect one's comprehensive income tax. Perhaps such people already have enough knowledge to judge the pros and cons without having to read this article.
Still, if you are worried, think of it as an account that only enjoys tax deferral benefits without income deductions. It is recommended that you put as much as you can into a pension savings account.