Mr. Kim, an employee in his 30s, joined Retirement Savings and Individual Retirement Pension (IRP) at the end of last year. It was because I was tempted to hear that if your earned income is less than 55 million won a year, you can get a refund of 1.155 million won with a limit of 7 million won for the two products combined. However, as the new year approached, I began to worry that I had blindly signed up for an annuity product that I’ve had to pay for for a long time without really knowing it. Was it a good thing that he signed up for Pension Savings and IRP for the purposes of the year-end settlement?
First, if the goal was ‘tax relief’, as he said, subscribing to the two products is a good choice. This is because retirement savings and IRP are representative financial products that are eligible for year-end tax deductions. In addition, this year, the tax credit ceiling for the sum of retirement savings and IRP was expanded from the previous 7 million won to 9 million won, further increasing tax savings. However, it is essential to know the product thoroughly as you need to pay for a certain period of time and receive benefits in the form of an annuity after age 55 to receive benefits such as tax credits and low taxation. Furthermore, it is advantageous to sign up after knowing exactly that the two products differ in deduction limits, operating restrictions and early withdrawals (see table).
First of all, there is no limit to the number of people who join the retirement savings, and the subscription period is 5 years or more, and you can pay up to 18 million won a year. Previously, the tax credit was granted up to 4 million won (7 million won combined with IRP) per year, but this year it was expanded to 6 million won (9 million won combined with IRP). IRP). A tax credit of 16.5% for gross wages below 55 million won and a tax credit of 13.2% for those above 55 million won. If you pay 6 million won, you will get back 990,000 won (total salary below 50 million won) and 792,000 won (total salary above 50 million won) at the end of this year.
If you pay 9 million won, you get a tax credit of 1,485,000 won
There are retirement savings funds and retirement savings insurance currently on the market, but since the management methods are different, you can sign up for a product that suits your preferences. Retirement savings funds can be paid in a free installment method and can be invested in equity funds and exchange-traded funds (ETFs). There are no limits on investment limits in risky assets, so it is suitable for investors with a long investment period until retirement and an aggressive tendency. For retirement savings insurance managed by insurance companies, on the other hand, the published interest rate is applied as the regular payment method. Also, unlike pension funds, capital is guaranteed and depositors are protected.
Retirement savings can be received after age 55, but the longer the period, the greater the tax benefits. Retirement income tax from 3.3 to 5.5% (3.3% for those aged 80 and over, 4.4% for those aged 70-80 and 5.5 % for those aged 55-70) up to KRW 12 million in annual pension receipt is charged, but if it exceeds KRW 12 million, you have to choose between global taxation and separate taxation of 16.5% with other income for the year. However, the amount included in the annual 12 million won is only for private pensions, excluding public pensions such as the national pension and pensions financed by pension funds.
Pension funds can be written off early, but unless there are unavoidable reasons such as natural disasters, death of subscribers or overseas migration, other income taxes must be paid at a rate of 16.5% on the amount of pension funds. tax deductions and operating profits. Furthermore, the other income tax of 16.5% is also applied in the event of withdrawal of the residual portion, excluding the amount that has received the tax credit.
The IRP is a retirement account that allows workers to subscribe freely while in office or to continue to accumulate and manage their retirement benefits upon retirement. All earners are eligible to join the program, who can pay up to 18 million won annually and receive tax credits of up to 9 million won (along with their retirement savings). If the total salary is less than 55 million won, a tax credit rate of 16.5% is applied, and a maximum of 1,485,000 won is applied.
In principle, the IRP is prohibited from withdrawing in the middle of the year, so when the total amount is reversed, another income tax (16.5%) is imposed on the accumulated funds and operating profits that have been taxed deducted, and the retirement income tax, which is higher than the retirement income tax (60-70% of the retirement income tax), is taxed on retirement income. To minimize such disadvantages, it is advantageous to manage retirement benefits and additional payments in separate IRP accounts. You can only open one IRP account with one financial institution, but you can open additional accounts with other financial institutions.
In an IRP account, up to 70% of total reserves can be invested in risky assets such as stock funds or ETFs, and more than 30% must be invested in safe assets. Furthermore, the income generated during the management period is exempt from taxation until the retirement benefits are received and can be received as a pension or in a lump sum upon receipt of the retirement benefits. It is possible to receive a pension if five years have passed since the date of registration and if the age of 55 or more has been reached, and a tax on retirement income of 3.3 to 5.5% is levied. If the pension received exceeds 12 million won, the entire amount is subject to global income tax, just like retirement savings.
3.3 ~ 5.5% low tax rate for pensions received after age 55
For retirement savings and IRP, which each have an annual deposit limit of 18 million won, the combined amount cannot exceed 18 million won even if you subscribe to both products at the same time. Therefore, it is advantageous to identify each feature and adjust the payment amount within the limit of 18 million won according to the investment propensity and purpose of use.
If Mr. Kim is greedy for taxation through tax savings this year, it is a good way to use a global wealth management (ISA) individual account, which is called the “three musketeers of tax savings” along with retirement savings and all ‘IRP. ISA can manage various financial products such as shares, funds, derivative-linked securities and deposits in one account. You can pay up to 100 million won for 5 years at a rate of 20 million won per year, and any payment limit not reached this year can be carried over to the next year. Most importantly, unlike general investment, which separate profit and loss by product, after totaling all profit and loss in the account, up to KRW 2 million net profit (KRW 4 million for general, working class, farmers and fishermen) is tax-free, and the excess is 9.9% lower than the interest income tax rate of 15.4%. Separate taxation may be applied to reduce taxes.
ISA is open to anyone over the age of 19. However, those who have earned more than 20 million won in interest and dividends annually in the previous three years are excluded from comprehensive financial income tax, and only one account can be opened in the financial sector, including banks and securities. ISA is divided into a brokerage type that invests in stocks, a trust type that joins a deposit, and a discretionary type that is executed by experts, depending on the investment method and the products that can be invested. You must maintain your account for at least 3 years after registration to maintain tax benefits.
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Reporter Hankyung Lee [email protected]
