Detailed Analysis of Investment Amount and Tax Deductions for Each Pension Savings Account

After various trials and errors, I have structured my retirement preparation accounts as follows:

No.	Account	Contribution Amount (=Maximum Annual Contribution)
1	Pension Saving Fund account	15M KRW
2	Individual Retirement Plan (IRP)	3M KRW
3	ISA (Individual Saving Account)	20M KRW
Total		38M KRW

As of the time of writing, I’m investing 18 million KRW in Pension Saving Fund while living as a resident. However, under normal circumstances, I would invest according to the table above. If I contribute the specified amounts to each account for a year, the eligible tax deduction amounts for year-end tax settlement would be as follows: (as of 2023)

Account	Contribution Amount	Tax Deduction Rate	Maximum Contribution Amount for Tax Deduction	Tax Deduction Amount (Annually)	Effective Tax Deduction Rate	Effective Tax Deduction Rate by Maximum Contribution Amount for Tax Deduction(19M KRW Annually)
Pension Saving Fund account	15M KRW	16.5% / 13.2%	6M KRW (Annually)	0.99 / 0.792M KRW	6.6% / 5.3%	16.5% / 13.2%
Individual Retirement Plan (IRP)	3M KRW		3M KRW (Annually)	0.495/0.396M KRW	16.5% / 13.2%	16.5% / 13.2%
ISA (Individual Saving Account)	20M KRW	10.0%	30M KRW (3 Year)	1M KRW KRW	5.0%	10%
Total	38M KRW			2.485 / 2.188M KRW	6.5% / 5.8%	13.1% / 11.5%

As for the contribution amount, it depends on each individual’s situation. In my case, I want to accumulate as much pension as possible at a young age, so I am contributing the maximum allowed amount in Pension Saving Account (38M KRW). The future value simple formula is the principal * (1+r)^period, right? As I cannot control “r,” the rate of return, the best approach is to maximize the principal amount and start as early as possible to achieve a higher future value. Even starting with 9 million KRW per year can result in a meaningful pension at retirement, and you can contribute more based on personal financial flexibility. I will cover the future investment performance in a separate post.

Once again, let me emphasize that the purpose of investing in the Pension Savings Account is “retirement preparation.” It requires a minimum investment period of 10 years, and sometimes even up to 30 years. There is no better way to invest than through Pension Savings Account. Based on an annual income of 55 million KRW, the income tax amounts to 3,256,200 KRW, and based on an income of 100 million KRW, it’s 13,024,704 KRW (applying a non-taxable amount of 2.4 million KRW and disregarding other deductions). Investing in Pension Savings Account can return more than 2 million KRW, so there is no reason not to take advantage of it.