Yoon, a 28-year-old who recently started working, opened a retirement savings fund account to invest a fixed amount each month in domestic exchange-traded funds (ETFs). The appeal of long-term investing through ETFs, combined with the tax deductions available during year-end tax settlements, motivated his decision.
Yoon stated, "Although my salary isn't high, I believe it's better to steadily build assets from the beginning of my career, when I have more time to invest. While I could buy ETFs through a regular account, I naturally chose retirement savings for the tax benefits it offers."
Perceptions of retirement savings among those in their 20s and 30s are changing. More young people are utilizing these accounts not just as long-term retirement products but as 'tax-saving investment accounts' that allow them to enjoy both tax deductions and long-term ETF investments.
According to a report released on July 18 by the Financial Services Commission and the Financial Supervisory Service, the number of retirement savings account holders in their 20s and 30s reached 2.29 million at the end of last year, a 13.8% increase from the previous year. This growth rate is more than double that of those in their 40s and 50s, which was 6.6%. Additionally, the number of account holders under 20 surged by 53.4% to 135,000.
The shift towards investment-type products is also notable. During the same period, the accumulated funds in retirement savings funds increased by 50.7%, from 40.7 trillion won to 61.3 trillion won. The ease of opening accounts via mobile platforms and the ability to regularly purchase ETFs with small amounts have contributed to this trend among younger investors.
The most direct factor attracting the 2030 generation is the tax deduction. Individuals can contribute up to 18 million won annually across retirement accounts, including retirement savings and individual retirement pensions (IRPs). Retirement savings accounts allow for tax deductions of up to 6 million won, and utilizing an IRP can increase the deductible amount to 9 million won.
For workers with a total salary of 55 million won or less, a deduction rate of 16.5% applies, while those earning above this threshold receive a 13.2% deduction rate. A worker earning 55 million won who contributes 6 million won to a retirement savings account can receive a maximum deduction of 990,000 won, and if they contribute 9 million won by including an IRP, the deduction can reach 1.485 million won. Actual refund amounts may vary based on previously paid taxes and other deductions.
Another advantage is the ability to defer taxation. In a retirement savings account, profits from buying and selling funds or ETFs are not taxed immediately. Taxes are only imposed when funds are withdrawn early or when retirement benefits are received after age 55. By reinvesting the money saved from tax deductions and the amount that would have gone to taxes, investors can enhance their long-term compounding effects.
The popularity of retirement savings funds is also attributed to their returns. The investment report indicated that the overall return on retirement savings last year was 10.6%. In comparison, general funds yielded 31.3%, and ETFs returned 27.4%. The combined return for investment-type products was 29.3%, significantly surpassing the 4.0% for retirement savings trusts and 0.8% for retirement savings insurance.
However, these figures reflect the strong market performance of the previous year. Unlike deposits, funds and ETFs do not guarantee principal, and losses can occur if the market declines. Additionally, changes in the criteria for calculating returns since the fourth quarter of last year and differing disclosure standards for products limit straightforward comparisons.
The range of products available for investment in retirement savings accounts has also expanded. According to Toss Securities, there are currently 1,046 domestic ETFs available for trading within their retirement savings accounts. Options range from products tracking major domestic and international indices to those investing in dividend stocks, bonds, gold, artificial intelligence (AI), and semiconductors.
Investors can also choose to automate monthly transfers to purchase ETFs rather than making a lump-sum investment. This approach allows for dollar-cost averaging and aligns well with the investment strategies of young professionals who can gradually increase their contributions as their incomes rise.
However, investors should be aware that retirement savings and pension plans have different investment regulations. While there are no specific limits on risky assets in retirement savings funds, IRPs and defined contribution (DC) pension plans can only invest up to 70% of total assets in equity-type ETFs. Utilizing bond-mixed ETFs, classified as safe assets, can increase the actual stock proportion to a maximum of 85%, but this strategy pertains to pension plans rather than retirement savings.
Brokerage firms are also entering the competition for retirement savings services aimed at the 20s and 30s demographic. Toss Securities recently launched its first tax-saving product, a retirement savings account, on July 24. The service includes personalized reports showing tax deduction progress and estimated tax savings for 2026, along with features for viewing domestic ETFs, stock accumulation, and automated transfers. The entire process, from account opening to management, can be handled through a mobile application, enhancing accessibility.
Given the significant tax benefits, caution is advised. Retirement savings accounts are designed for long-term investment. Generally, funds can only be withdrawn as retirement benefits after five years and upon reaching age 55. If money is withdrawn for purposes other than retirement, such as living expenses, wedding funds, or home purchases, a 16.5% other income tax may be imposed on the contributions and earnings that received tax deductions.
Closing an account may require returning a substantial portion of the tax benefits received. However, not all contributions that did not receive tax deductions are subject to taxation.
Experts advise against trying to maximize tax deduction limits from the outset. Young individuals needing significant funds for marriage, rental deposits, or home purchases should first secure living expenses and emergency funds before starting with an amount they can maintain over the long term.
An industry insider remarked, "Even with substantial tax deduction benefits, one should not strain their living funds by contributing excessively to retirement accounts. It is more practical to automate a manageable monthly amount and gradually increase contributions as income rises."
* This article has been translated by AI.
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