Although we have already determined the investment stocks/ETF in the previous post, we now need to decide in which account to invest. There are three main account options, each with its own characteristics as shown in the following table.
| Domestic-listed Overseas ETF with Pension Saving Account | Domestic-listed Overseas ETF – Regular Account | Direct Investment in the US | |
| Method of Applying Cap Gain Tax | Pension Tax + Comprehensive Income Tax | Dividend Income Tax | Cap Gain Tax |
| Cap Gain Tax % | *3.3%~5.5% (under 12 million KRW) Split Taxation, Applied Comprehensive Income Tax When Exceeding 12 million KRW. | 15.4% (under 20 million KRW) Split Taxation, Applied Comprehensive Income Tax When Exceeding 12 million KRW. | 22% (Over 2.5 million KRW) Split Taxation |
| Dividend Tax % | 15.4% (under 20 million KRW) Split Taxation, Applied Comprehensive Income Tax When Exceeding 12 million KRW. |
It might seem a bit complex, but explaining with an example could help in quickly grasping the concept. If we exclude dividends and focus solely on capital gains, we can determine which account is the most favorable for a given annual capital gain. To compare with overseas-listed ETFs, we will use unhedged-based domestic-listed overseas ETFs and assume all related costs are the same.
| Annual Gap Gain | Domestic-listed Overseas ETF with Pension Saving Account | Domestic-listed Overseas ETF – Regular Account | Direct Investment in the US |
| 2.5 million KRW | 83~138k KRW | 385k KRW | 0 |
| 8.3 million KRW | 275~458k KRW | 1.28m KRW | 1.28m KRW |
| 20 million KRW | 1.14~1.76m KRW | 3.1m KRW | 3.9m KRW |
| 140 million KRW (Taxable Income) | 0.66 + 29.4m KRW = 30.1m KRW | 3.1m + Comprehensive Income Tax | 30m KRW |
| Annual Cap Gain | Favorable Way to Invest |
| < 83.3 million KRW | Direct Investment in the US |
| 83.3 < 200 million KRW | Domestic-listed Overseas ETF – Regular Account |
| > 200 million KRW | Direct Investment in the US |
| Annual Cap Gain | Favorable Way to Invest |
| < 140 million KRW | Pension Saving Account |
| > 140 million KRW | Direct Investment in the US |
Since our goal is retirement preparation, the results from investing in a regular account are not crucial. In the end, both overseas-listed ETF capital gains tax and pension savings account income tax are progressive taxes, and there’s a point where these two taxes become equal. This point is estimated to be around 140 million KRW (based on the taxable standard). This is a rough estimate assuming no other income apart from pension income, and it varies depending on individual circumstances such as insurance premiums, additional national pension payments, additional deductions, etc. To summarize, if selling stocks in the pension savings account for retirement purposes does not result in an annual amount exceeding 140 million KRW, it is advisable to invest in the pension savings account without hesitation. Typically, with an annual safe withdrawal rate of 4%, to receive an amount less than 140 million KRW per year, the evaluated value at that time should be at least 3.5 billion KRW. Even with an aggressive 8% withdrawal, you would need 1.75 billion KRW. If my pension income ever exceeds 140 million KRW annually (in present value terms), I am willing to patriotically pay the additional income tax with the thought of investing. Of course, the choice is ultimately up to the individual.
[Appendix]
2023 Comprehensive Income Tax Rate in Korea
| Taxable Income | Rate |
| Under 14m KRW | 6% |
| Under 50m KRW | 15% |
| Under 88m KRW | 24% |
| Under 150m KRW | 35% |
| Under 300m KRW | 38% |
| Under 500m KRW | 40% |
| Under 1b KRW | 42% |
| Over 1b KRW | 45% |
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