Korea gives you one deduction you can claim by saving rather than spending: contributions to a pension savings account (연금저축) or an IRP. Put money into your own account, and part of it comes back off your tax bill.
1. What it's worth. The cap is ₩6 million in a pension savings account and ₩9 million including an IRP. Fill the ₩9 million and the credit is ₩1,350,000 at 15% or ₩1,080,000 at 12% — with local income tax, ₩1,485,000 / ₩1,188,000. The 15% band is aggregate income of ₩45 million or less (or gross salary of ₩55 million or less if employment income is all you have).
2. Where the risk is. Break it early and you repay on money you were never credited for. The credit applied only to what you put in; the clawback applies to contributions plus investment gains — and anyone credited at 12% repays at 15%.
3. What to do. Contributions must land by 31 December. If you need the money out early, check first whether you qualify for the low-rate (3.3–5.5%) withdrawal — you must clear both the tax law's three months and the labour law's six months, and the tighter six-month test binds first.
The number you will see everywhere online is “16.5%, up to ₩1,485,000”, but the source documents print 15% and 12%, and the income line is aggregate income, not gross salary. Both are explained below.
The caps: ₩6 million and ₩9 million
Start with the part that does not move. Reporting the 2023 amendment, the tax accountants’ newspaper wrote that the pension-savings cap “rises from ₩4 million to ₩6 million” and that including retirement pension accounts such as an IRP, the figure “expands from ₩7 million to ₩9 million”.
So: ₩6 million on its own in a pension savings account, or ₩9 million combined once you add an IRP. The old rule that gave people aged 50 and over a higher cap is gone — the limit is now the same at every age.
| Item | Before | Now |
|---|---|---|
| Pension savings account alone | ₩4,000,000 | ₩6,000,000 |
| Combined with IRP / retirement pension | ₩7,000,000 | ₩9,000,000 |
| Age condition | Higher cap at 50+ | None |
The credit rate: the source says 15% and 12%
A 2024 opinion piece in the same paper puts the rate and the income line in one sentence: from contributions made in 2023 onward, regardless of age, on the combined ₩9 million, “15% where aggregate income is ₩45 million or less, and 12% where it exceeds ₩45 million”.
Where do 16.5% and 13.2% come from, then? They are usually explained as the effect including local income tax, which is levied in proportion to income tax — cut the income tax and the local surtax falls with it. We could not find those two figures printed in any public-agency or professional-body source we can reach — and we went looking a second time, with the same result. The tax accountants’ newspaper, the Financial Supervisory Service’s FINE portal, the Seoul Labor Centre and KDI all print 15% and 12%, and none of them mentions local income tax at all. The places that print 16.5% are private brokerages, banks and the press. So this article works from the 15% / 12% that are printed.
| Aggregate income | Verified credit rate | On a full ₩9,000,000 |
|---|---|---|
| ₩45 million or less | 15% | ₩1,350,000 |
| Over ₩45 million | 12% | ₩1,080,000 |
The NTS filing guide puts both faces of this rule in a single sentence, which settles a question that has been open here for a while:
“… 12% [a resident whose aggregate income is ₩45 million or less (or, where there is only wage income, gross salary of ₩55 million or less) gets 15%] … is deducted from global income tax for the period.”
— National Tax Service, pension account tax credit (Income Tax Act §59-3)
In July 2026 we opened the source of that sentence — Article 59-3 of the Income Tax Act (in force 1 January 2026, Act No. 21221) — at the National Law Information Centre. It matched the NTS wording word for word. The cap, in the statute, comes in two steps.
Provided that, where the amount paid into a pension savings account exceeds ₩6 million a year, the excess shall be deemed non-existent, and where the sum of the amount within ₩6 million paid into a pension savings account and the amount paid into a retirement pension account exceeds ₩9 million a year, that excess shall be deemed non-existent.
The order is fixed. The pension savings account is cut to ₩6M first; that cut figure is then added to the retirement pension account and the total cut to ₩9M. So ₩9M into a pension savings account counts as ₩6M, while ₩9M into an IRP alone counts in full (our own arithmetic).
“₩45 million aggregate income” and “₩55 million gross salary” were never two different rules. They are the same rule, named differently depending on who it applies to.
| Your income | Figure that matters | 15% band |
|---|---|---|
| Wage income only (most employees) | Gross salary | ₩55 million or less |
| Anything else in the mix (business, other income) | Aggregate income | ₩45 million or less |
If you are a salaried employee, the ₩55 million line is the only one you need. Gross salary is pay minus non-taxable items, so it may differ from the number on your contract — check the “gross salary” box on your withholding receipt.
※ The contribution cap and the credit cap are different numbers. The NTS lists “₩18 million a year” as the payment limit for a pension account. So you may pay in up to ₩18 million, of which only ₩9 million earns the credit. The excess earns no credit but still gets tax deferral on its growth — and since the withdrawal order takes uncredited principal out first, the downside is limited.
Two caps and two rates make four combinations — and the four amounts differ this much.
Downsize your home and the difference can go into an IRP
Barely anyone knows this one. From the NTS tax-credit guidance:
“Where a single-home elderly household* moves to a lower-priced home, the difference is allowed as an additional IRP contribution (capped at ₩100 million)”
* one spouse aged 60 or over
It is a route out for retirement money locked up in a house. Sell the larger home, move to a smaller one, and up to ₩100 million of the difference can go into an IRP — separately from the ₩18 million annual contribution cap.
And 2025 added a second route.
“Where a basic pension recipient disposes of long-held real estate, the gain (combined with the single-home elderly household amount, capped at ₩100 million over a lifetime)”
— Enforcement Decree of the Income Tax Act §40-2(2)(d), 28 February 2025
So land and other property held long-term now qualifies too — though the ₩100 million lifetime cap is shared with the housing route.
※ The guidance does not define how long “long-held” is, nor the detail of the basic-pension-recipient test, nor the application procedure and deadline. The NTS pension income page does give more on the housing route — one home between the couple (a temporary second home within six months is allowed), the sold home’s assessed value ₩1.2 billion or less, and payment within six months of the disposal. Confirm with your provider and the tax helpline (126) before acting.
Over-contributed last year? You can still claim it this year
Another one that goes unused. The NTS guide calls it the “special rule converting excess pension-account contributions into the current year’s contributions” (Enforcement Decree §118-3).
“Where a pension account holder has an amount contributed in a previous tax period that did not receive the pension account tax credit… and applies to the provider to convert all or part of it into a contribution for the current tax period… it is treated as contributed to the pension account again on the day of the application.”
The NTS worked example makes it concrete:
| When | What happened |
|---|---|
| 2024 | Paid ₩6m into a pension savings account, but only ₩4m was credited |
| 2025 | No spare cash — nothing paid in |
| 20 Oct 2025 | Applied to the provider to convert |
| 2025 settlement | The excess ₩2m × 15% = ₩300,000 credited |
A credit without paying in a single won. If you over-contributed last year, or could not contribute this year, ask your provider about the conversion application. It applies to applications made on or after 1 May 2014.
※ The ISA transfer allowance is excluded from this rule — it applies only in the year of the transfer.
What really decides the outcome is how you take it out
Going in, the difference between brackets is three percentage points. Coming out, the rate runs from 3.3% to 16.5% — a factor of five. That is where this account is won or lost.
The Financial Supervisory Service’s consumer portal (February 2025) sets out the rates by age:
| Payout type | Age | Pension income tax |
|---|---|---|
| Fixed-term | 55–69 | 5.5% |
| 70–79 | 4.4% | |
| 80 and over | 3.3% | |
| Lifetime | 55–79 | 3.3% ↓ |
| 80 and over | 3.3% |
※ The lifetime rate dropped in 2026. The NTS footnote reads “applies to pension received on or after 1 Jan 2026 (previously 4%)” — 4.4% to 3.3% including local income tax. The FSS table above is from February 2025, when 4.4% was correct. More in pension withdrawal tax.
The same page adds an annual test: taking ₩15 million or less a year keeps you in the low band of 3.3–5.5%. Go above it and you choose between aggregate taxation at 6.6–49.5% and separate taxation at 16.5%. In other words, taking a large sum in a single year throws you out of the cheap band. That threshold was ₩12 million until 2023 and rose to ₩15 million for income arising from 2024.
Put the credit rate and the withdrawal rates on one axis and it is clear where this account is won or lost.
Cashing out early can cost more than you were given
Break the account without a statutory reason and, in the newspaper’s words, “a 16.5% other-income tax is levied on the self-contributions that received the tax credit and on the investment returns”. The NTS prints the same item as 15% (non-pension withdrawal · other income · separate taxation) — the same 1.1× pattern as before.
This is where the common explanation goes wrong. “You get 15% back and pay 16.5%” puts two numbers on different bases side by side. Measured consistently, the credit is 15% and the clawback is 15% (or 16.5% against 16.5% including local income tax). The rate is the same.
Breaking the account still costs you — but because of what is taxed, not the rate.
- The credit applied only to what you paid in, while the clawback covers “self-contributions and investment returns”. Every won of growth is taxed at 15% too.
- If your credit was 12% (aggregate income above ₩45m) it is starker still: 12% in, 15% out.
- Anything paid in above the ₩9m cap never earned a credit at all — yet the returns on it are taxed as well.
So the loss is not “a higher rate”. It is paying back on money you were never credited for.
If an unavoidable reason is recognised, “only a low-rate (3.3–5.5%) pension income tax is levied”. What counts as one — and the deadline most people miss — is next.
What counts as an “unavoidable reason”
The NTS lists them — and notably, for pension accounts as a whole, without splitting by account type:
“Natural disaster; death or emigration of the account holder; the holder or a dependant (eligible for the basic deduction, with no income limit) requiring three months or more of treatment for illness; requiring 15 days or more of hospitalisation due to a disaster; the holder’s bankruptcy; suspension of the pension account provider”
Two things worth pulling out.
- A dependant’s illness qualifies — it does not have to be you. And the text specifically brackets “eligible for the basic deduction, with no income limit”: the ₩1 million income ceiling that governs the dependant deduction does not apply here.
- There is a filing deadline. For medical purposes, documents go to the provider “within six months of the date the medical expense was paid”; for other unavoidable reasons, “within six months of the date the reason is confirmed”. Having the reason but filing late loses the low rate.
A table previously stood here claiming an IRP requires “six months of treatment plus 12.5% of annual wages” while a pension savings account requires three months. It has been removed. The NTS text sets the test at three months for pension accounts generally, with no split by account type. At the time we wrote that the “six months + 12.5%” figure looked like it belonged to a different statute, but that we could not open it and would not assert it. In July 2026 we opened it. The result is below.
“Six months” and “12.5%” — which law are they from?
Explanations of early withdrawal routinely put the tax law's three months and the labour law's six months in one table. Read Articles 2, 14 and 18 of the Enforcement Decree of the Employee Retirement Benefit Security Act (in force 24 March 2026) and they operate at different levels — and the 12.5% is not an IRP condition at all.
“Six months of treatment” sits in the labour statute, not the tax one
Article 2(1)2 of the Decree. It defines the grounds for pledging benefits as security, and the other articles keep pointing back to it.
2. Where the participant bears medical expenses (as defined in Article 118-5(1) and (2) of the Enforcement Decree of the Income Tax Act) for illness or injury of any of the following persons requiring six months or more of treatment:
(a) the participant; (b) the participant's spouse; (c) a dependant of the participant or their spouse
The two rules operate at different levels, and that is now confirmed. The NTS's three months decides whether the money is taxed at the low rate. The Decree's six months decides whether the money can come out at all. Both have to be satisfied — you cannot be taxed on a withdrawal that cannot happen — so in practice the stricter six-month test binds first. That is precisely why merging them into one table was wrong.
The 12.5% threshold belongs to DC plans, not IRPs
This is where the common account diverges most from the statute. Put the two articles side by side.
Article 14 (grounds for mid-term withdrawal from a defined-contribution plan) (1) …
1-2. Where Article 2(1)2 applies and the participant bears medical expenses exceeding 125/1,000 of their own annual total wages
Article 18 (… mid-term withdrawal from an individual retirement pension) (2) …
3. Where Article 2(1)2 applies. Provided that, in the case of a participant in an individual retirement pension under Article 25 of the Act, this is limited to cases where the participant bears medical expenses exceeding 125/1,000 of their own annual total wages.
| Account | Medical-expense withdrawal test | 12.5% threshold |
|---|---|---|
| DC plan | Six months' treatment + over 12.5% of wages | Yes (Art. 14(1)1-2) |
| IRP (general) | Six months' treatment | No (Art. 18(2)3, main text) |
| IRP under Article 25 of the Act | Six months' treatment + over 12.5% of wages | Yes (Art. 18(2)3, proviso) |
“125/1,000” is 12.5% (125 ÷ 1,000 = 0.125 — our own arithmetic). The statute uses per-mille, not per cent.
The widely repeated line that “an IRP needs 12.5% before you can withdraw” does not match the text. The 12.5% test belongs to DC plans; the main text of the IRP article carries no such threshold. It attaches to an IRP only for a participant under Article 25 of the Act — the special provision for businesses with fewer than 10 employees. Ask the provider that opened your account which one you hold: the same word “IRP” can rest on different articles.
How Article 25 IRPs are distinguished in practice cannot be read off the statute, and we did not verify it.
A side finding: two withdrawal grounds exist only for IRPs
Read Article 18(2) to the end and items appear that Article 14 (DC) does not have.
- Jeonse or rental deposit (Art. 2(1)1-2) — limited to “one time while working at one business” (Art. 18(2)2, proviso). Once per employer, not once per lifetime.
- Repaying a loan secured on the benefits (Art. 18(2)7) — and the amount withdrawn is capped at “no more than what is needed to repay principal and interest” (Art. 18(3)).
- Bankruptcy or individual rehabilitation must have been granted “within five years counting back from the date of application” (Art. 18(2)5, 6). An old bankruptcy does not qualify.
- Disaster qualifies but is “limited to having suffered damage from a disaster” (Art. 18(2)4) — the other half of Article 2(1)5, wages reduced by an employer shutdown, is not an IRP withdrawal ground.
The payout conditions are in the statute too — Article 18(1): an annuity requires age 55 or over, and “the payment period shall be five years or longer.” A lump sum also requires 55.
The habit of filling the pension savings account first is still reasonable, though: separate from the tax test, an IRP holds retirement benefits and therefore has an extra statute governing withdrawal itself. Filling ₩6 million there and the remaining ₩3 million in an IRP yields exactly the same credit.
Which is why the common order is fill the ₩6 million in the pension savings account first, then put the remaining ₩3 million in the IRP. The deduction is identical; one exit is wider.
The IRP’s 70% risk-asset limit has an exception
An IRP cannot hold everything in equities. A Ministry of Employment and Labor release (July 2022) refers to “the existing risk-asset limit (70%) regulation” — and, in the same sentence, to its exception: “a default-option method can be operated up to 100% of reserves.”
So the 70% wall does not apply to money run through the default option. If the underlying plan types are unfamiliar, see our explainer on DB, DC and IRP.
Timing: December 31, and the settlement date
Contributions must land by December 31 to count for that year. Lump-sum contributions in December are fine, but a pension savings fund is measured by the trade settlement date, so leave a few business days. Transfer on December 30 and settlement may fall into January.
Deadlines across the year are laid out in our tax calendar, and anyone filing in May should read global income tax explained.
When this account is the wrong tool
- Money you need within three to five years. Break it before 55 and it is 16.5%. Never put your emergency fund here.
- Little or no tax to offset. A tax credit subtracts from tax already assessed — a small final liability means you cannot absorb the full ₩9 million.
- Borrowing to hit the cap. If the interest exceeds the 15% credit, there is nothing left over.
For the wider picture, see what retirement actually costs each month and the income gap between retirement and your first pension payment. The other big fixed cost after leaving work is covered in health insurance after you retire.
Questions people ask
Can I put the whole ₩9 million into the pension savings account?
You can, but only ₩6 million counts — that is the standalone cap. The remaining ₩3 million has to sit in an IRP to be claimed.
Does this work for the self-employed and freelancers?
Yes. The source says “all employees and aggregate-income earners”. Claim it in the May filing.
Is 16.5% simply wrong?
No. But no source actually writes “including local income tax”. What is established is this: the NTS prints 15%, the FSS prints 16.5%, and the two sit at exactly a 1.1× ratio — consistent with local income tax being 10% of income tax, though never stated as such. This article uses the statutory 15%.
What about the extra credit for rolling an ISA into a pension account?
Confirmed against the NTS. The credit ceiling is raised by 10% of the transferred amount, capped at ₩3 million, and the money must go in within 60 days of ISA maturity. One catch, in the NTS’s own words: “the ISA transfer allowance applies only in the year the matured ISA balance is paid into the pension account”. Miss that year and it is gone.
Can I withdraw everything at 55?
You can, but crossing ₩15 million in a single year pushes you out of the low band. Spreading it costs less tax.
Sources and where to check
- Korea Ministry of Government Legislation, National Law Information Centre — Income Tax Act, Article 59-3 (pension account tax credit), in force 1 January 2026, Act No. 21221. Source for the 12% / 15% rates, the ₩45M aggregate-income (₩55M salary) threshold, and the two-step ₩6M → ₩9M cap. Verified as identical to the NTS wording.
- National Law Information Centre — Enforcement Decree of the Employee Retirement Benefit Security Act, Article 18, in force 24 March 2026. Source for the seven IRP withdrawal grounds, the once-per-employer deposit rule, the five-year window on bankruptcy, the 12.5% test being limited to Article 25 participants, and the five-year minimum annuity period.
- National Law Information Centre — Same Decree, Article 14 (DC plan withdrawal grounds). Source for the 125/1,000 requirement applying to DC plans, and the article that shows the contrast with IRPs.
- National Law Information Centre — Same Decree, Article 2 (grounds for pledging benefits). Where “six months or more of treatment” and its covered persons (participant, spouse, dependants) actually live. Other articles cite this subparagraph.
- Korean Association of Certified Public Tax Accountants newspaper — points to watch when filing 2023 income tax (22 April 2024). Source of “15% where aggregate income is ₩45m or less, 12% above”, the ₩6m / ₩9m caps and the ₩12m to ₩15m change.
- Same newspaper — pension account credit rises to ₩9 million (5 January 2023). Source of the ₩4m to ₩6m / ₩7m to ₩9m change.
- National Tax Service — Wage income > tax credits guidance (checked 28 July 2026). Source of the credit-rate table (₩45m / ₩55m or less → 15%, above → 12%), the ISA 10% / ₩3m allowance and its one-year limit, the single-home elderly household IRP top-up (₩100m, one spouse aged 60+), and the basic pension recipient’s long-held property gain (₩100m lifetime).
- National Tax Service — “2025 Year-End Settlement Filing Guide for Withholding Agents”, pp. 164–166 (pension account tax credit, Income Tax Act §59-3). Source of the statutory wording combining the two income thresholds, and of the excess-contribution conversion rule.
- National Tax Service — Pension income — withholding. Source of the 15% other-income rate on non-pension withdrawals, the 15% separate-taxation election above ₩15m, and the 5% / 4% / 3% private-pension withholding rates — each at exactly a 1.1× ratio to the FSS figures.
- Same newspaper — check the conditions for low-rate tax on unavoidable early withdrawal (25 January 2022). Source of the 16.5% other-income tax and the 3.3–5.5% low band. Its IRP-versus-pension-savings comparison is no longer used here — see the note above.
- Financial Supervisory Service, FINE portal — retirement planning tips (21 February 2025). Source of the age-based rates, the ₩15 million threshold and the 6.6–49.5% / 16.5% choice above it.
- Ministry of Employment and Labor — introduction of the default option for retirement pensions (5 July 2022). Source of the 70% risk-asset limit and the 100% default-option exception.
Written as of July 2026. The ₩6m / ₩9m caps, the 15% and 12% rates with the ₩45 million aggregate-income line, the withdrawal rates, the IRP-versus-pension-savings difference and the 70% limit all come from the sources above. Four more items closed against the NTS this round — the ₩55 million gross-salary line (the same rule as the ₩45 million aggregate-income line, not a different one), the ISA transfer allowance of 10% capped at ₩3 million, the excess-contribution conversion rule, and the IRP top-ups from downsizing or selling long-held property. What remains unverified: any sentence stating that 16.5% / 13.2% include local income tax (the NTS also prints only 12% / 15%), the IRP mid-term withdrawal test under the Employee Retirement Benefit Security Act, and the detailed conditions and procedure for the property-based top-ups. Confirm with your provider or the tax helpline (126). Your actual refund depends on your assessed tax and income mix; this is not investment or tax advice. To put your own contributions through it, there is the pension savings and IRP credit calculator.
