Korea's Pension Accounts: the 9 Million Won Tax Credit Ceiling

The combined amount eligible for Korea's pension-account tax credit is 9 million won a year, and a yeongeum-jeochuk (private pension savings) account on its own counts for only 6 million of that. Put the whole 9 million into pension savings and 3 million simply falls outside the credit. For a wage earner with gross pay of 55 million won or less, that misallocation costs 495,000 won on identical deposits.

The ceiling is not the only thing separating the two accounts. What it takes to pull money out early, what you owe if you break the account before 55, and how the payout is taxed all differ. Once the numbers are laid out, the choice of which account to fill first stops being a matter of preference.

How to split the 9 million won

The National Tax Service guidance on pension-account credits sets the deductible contribution limit at 6 million won, or 9 million including retirement pension contributions. Deposits into a pension savings account count up to 6 million; IRP (Individual Retirement Pension) contributions are added on top until the combined total reaches 9 million. The IRP side carries no separate individual cap of its own.

Only one allocation actually loses money: pushing more than 6 million into the pension savings account alone. Route the entire 9 million through an IRP and the ceiling is filled in full. Run the allocations through the credit rates and the gap is easy to see.

Refunds above are the eligible amount multiplied by the effective credit rate including local income tax — 16.5% and 13.2%. The distance between the first and third rows is 495,000 won; in the higher income band it is 396,000 won. The money deposited is 9 million either way.

For anyone who cannot fill the full ceiling, the split matters far less. Deposit 6 million or under in total and every won qualifies wherever it sits. At that point the deciding factor is not tax but withdrawal terms.

Gross pay decides the refund

The rates printed in the tax office guidance are 15% and 12% — 15% at or below 45 million won of global income (55 million of gross pay), 12% above it. What actually lands in the account adds local income tax, giving 16.5% and 13.2%. Nongmin Shinmun likewise put the full-ceiling refund at 1,485,000 won for earners at or under 55 million and 1,188,000 won for those above.

The dividing line is gross pay of 55 million won, and crossing it moves the full-ceiling refund by 297,000 won. For anyone whose year-end bonus pushes gross pay around that boundary, which side the year lands on matters more than fine-tuning the deposit.

One item survives after the ceiling is full. Rolling matured ISA funds into a pension account adds 10% of the transferred amount, up to 3 million won, as additional credit-eligible contributions, separate from the 9 million cap. For what to hold inside the account once it is funded, see the piece comparing TDF vintages, glide paths and total expense ratios.

What breaking the account early costs

A pension savings account can be tapped without giving a reason. In exchange, the credited contributions and accumulated investment gains are hit with an other-income tax of 15%, or 16.5% with local income tax. The IRP threshold is different in kind. Mirae Asset Securities' withdrawal guidance states that early withdrawal is possible only for grounds set out in the Enforcement Decree of the Employee Retirement Benefit Security Act: buying a home in the name of a subscriber who owns none, raising a jeonse (lump-sum deposit lease) deposit for housing, six months or more of care for the subscriber, spouse or dependants, a rehabilitation or bankruptcy ruling within five years, and disaster damage. Absent any of these, the only exit is closing the account outright.

Judging by the rate alone — 16.5% in, 16.5% out — it looks like a wash. Take 6 million won a year for five years, 30 million in total, closed before age 55, with investment gains simplified to zero.

Someone who was credited at 13.2% pays back at 16.5%, so the 3.3 percentage-point gap becomes a straight loss — 990,000 won on 30 million. Any investment gains are taxed at 16.5% as well, pushing both bands below the table. Contributions made above the ceiling, never having been credited, are not taxed on the way out.

The tax benefit inside a pension account is deferral, not forgiveness. Withdraw before 55 and the arithmetic resets to zero — or, in the higher income band, below it.

Payout tax turns on age and 15 million won

Take the money as a pension after 55 and it shifts to low-rate pension income tax. The tax office withholding schedule is 5% under 70, 4% from 70 to under 80, and 3% at 80 and above — 5.5%, 4.4% and 3.3% once local income tax is included. Lifetime annuity contracts that pay until death and cannot be surrendered are taxed at 3% from 1 January 2026. Later withdrawal, lower rate.

There is a catch. Once total private pension receipts exceed 15 million won a year, that low separate taxation no longer simply holds; the excess must be filed as global income or taxed separately at 15%. This is why payout schedules are stretched to keep the annual figure under 15 million. Where other financial income is also large, read it alongside the 20 million won threshold for global taxation of financial income.

Where this arithmetic breaks

Three assumptions hold the numbers up. First, that the 15% and 12% bands and the 9 million ceiling stay as they are; a tax code amendment rewrites the refund column immediately. Second, that the credit rate at deposit exceeds the pension income tax rate at payout — if private pension receipts top 15 million a year in retirement and other income stacks on it, the deferral gain shrinks. Third, that returns inside the account comfortably clear costs. Over thirty years, 0.3 percentage points of annual fees can outgrow the 3.3-point rate gap.

What to watch

• Whether pension savings deposits on the year-end settlement statement exceeded 6 million won — the excess has to move to an IRP to count
• Which side of the 55 million won line this year's gross pay falls on — a 297,000 won swing at the full ceiling
• Whether the reason you need IRP money qualifies as a statutory early-withdrawal ground — if not, only full closure is available
• ISA maturity dates — rolling matured funds into a pension account adds up to 3 million won of eligible contributions
• Planned start age and number of payout years — the range that keeps annual receipts under 15 million won
• Total expense ratios of the holdings inside the account — the cost that compounds longest

Sources

• National Tax Service — Pension account tax credit
• National Tax Service — Withholding on pension income
• Nongmin Shinmun — Pension accounts and the 16.5% refund on 9 million won
• Mirae Asset Securities — Retirement pension early withdrawal guide