Pension Savings Account (Yeon-geum-jeo-chuk): Who Qualifies and What You Get
Learn how the Pension Savings Account helps you reduce your tax burden through contributions, while understanding the rules for long-term savings.
The Pension Savings Account (Yeon-geum-jeo-chuk) is a long-term financial tool designed to help individuals build up savings for their retirement while providing immediate tax relief.
Who it's for
This scheme is designed to be accessible to a wide range of people. Specifically, it is available to all taxpayers who want to manage their tax obligations while saving for the future.
What you get
The primary benefit of using this account is the ability to lower your taxable income. When you contribute money into the account, you can receive a tax deduction on those contributions. Under the current rules, you can claim this deduction on contributions up to a limit of 6 million ₩. This helps you manage your yearly tax liability by reducing the amount of income that is subject to taxation.
What it costs you
While the tax benefits are helpful, this is a long-term commitment rather than a liquid savings account. The most significant cost is the lack of flexibility regarding your funds. Once you put money into this account, the funds are locked away. You generally cannot access this money until you reach the age of 55. Because the money is intended for retirement, you must be certain you do not need these funds for immediate living expenses or emergencies.
The catch to know
The most important thing to understand before opening an account is the penalty for early withdrawal. Because the government provides tax benefits to encourage long-term saving, they discourage you from taking the money out early. If you choose to withdraw your funds before the required age, you will be subject to a 16.5% penalty tax on the amount you take out. This penalty can significantly reduce the total amount of money you actually receive if you need to exit the scheme early.
How to apply
- Decide on a financial institution that offers this specific type of pension savings account.
- Open the account through your chosen provider, either online or in person.
- Begin making contributions to the account to build your savings and reach the deduction threshold.
- Consult with a tax professional or your financial institution to understand how the deductions will apply to your specific tax situation.