How to Utilize IRP Accounts with Increased Limits [Practical Financial Planning]

"Pay According to Household Situation... Maximum Up to the Limit"
"Choose Products According to Investor Preferences"
It Is Advantageous for Youth to Be Aggressive and for Middle-aged to Be Conservative

With the increase in the tax deduction limit for Individual Retirement Pension (IRP) accounts since last year, financial consumers preparing for retirement now have more diverse options. IRP accounts allow contributions up to 18 million KRW annually when combined with pension savings. Additionally, tax deduction benefits are provided up to a maximum of 9 million KRW per year when combined with pension savings contributions.

For example, the tax deduction rate is 13.2% if the annual salary exceeds 55 million KRW, and 16.5% if it is below. In other words, by contributing the maximum annual tax deduction limit of 9 million KRW, one can receive a tax saving benefit of up to 1.485 million KRW (for salaries below 55 million KRW) or 1.188 million KRW (for salaries above 55 million KRW) during year-end tax settlement.

The financial investment industry explains that contributing up to the limit in an IRP account is the first step toward a stable retirement. A representative from Daishin Securities stated, "National pension alone is not sufficient to prepare for an unstable retirement life," adding, "Contributing up to the annual tax deduction limit of 9 million KRW through IRP or pension savings is the foundation."

However, the financial investment industry also points out some precautions. Since early withdrawal can lead to losses, it is important to contribute according to the household’s situation. The representative advised, "If you withdraw early without receiving it as a pension, you must return all the tax deduction benefits received," and added, "It is advisable to carefully check the household’s situation and contribute only to a level that can be endured without withdrawal."

They also emphasize the importance of choosing products that match the investor’s profile, as investors vary greatly in age and temperament.

A Daishin Securities representative said, "Recently, there are numerous pension management products such as funds and Exchange-Traded Funds (ETFs)," and added, "Investors seeking active management can manage directly." He continued, "If you are not confident in managing pension products, default option products provided by financial companies are available, which can be a good alternative depending on your investment style."

A representative from Mirae Asset Securities explained, "It is best to decide which account to contribute to?pension savings account or IRP account?by considering the characteristics of each account and the customer’s profile," adding, "A key feature of the pension savings account is that there is no investment limit on investment assets, allowing 100% investment in investment products. On the other hand, IRP accounts allow up to 70% investment in investment assets and offer a wide range of options from principal-guaranteed products to investment products."

The financial investment industry explains that investing in assets with high growth potential is advantageous for products held in IRP. The ACE US Big Tech TOP7 Plus and ACE Global Semiconductor TOP4 Plus SOLACTIVE ETFs from Korea Investment Trust Management are suitable products for the era of technology stocks. Kim Seung-hyun, head of the ETF Consulting Team at Korea Investment Trust Management, said, "We are entering the era of technology stocks, making tech-related investments essential," and explained, "Considering the development of AI and benefits from interest rate cuts, the influence and performance of top big tech stocks and the number one semiconductor technology companies are expected to expand further."

A representative from Hanwha Asset Management said, "The most recommended product for IRP accounts currently preparing retirement funds is TDF," explaining, "TDF is a financial product that automatically adjusts the ratio of risky assets and safe assets according to one’s retirement age and can be invested 100% in IRP." He added, "If you seek high returns, it is also a good time to consider overseas equity funds and bond funds such as the Hanwha Hercules Developed Countries Active Fund, which invests considering free cash flow generation ability and valuation."

They also emphasize the importance of selecting products suitable for each age group. Young adults should pursue high returns, while middle-aged individuals should focus on risk management.

A representative from Samsung Asset Management said, "Young adults should invest as much as possible in stocks of countries, regions, and industries that continuously generate ‘growth’ to pursue high returns," and proposed, "A portfolio strategy that invests 30% of retirement pension safe assets also in developed country stocks to the maximum extent."

The representative advised, "Middle-aged individuals are in the age group where assets decrease and pension withdrawal and spending begin in earnest, after the ‘pension accumulation period’ when assets increase and pensions are contributed," adding, "The most important thing for them is ‘investment without loss,’ and above all, ‘risk management’ is essential."

A representative from KB Asset Management said, "For aggressive risk-tolerant investors in their 20s and 30s, we recommend investment products with 70% risky assets and 30% safe assets (including income type)," and explained, "For investors in their 30s to 50s who benefit from interest rate cuts and have demand for stable income investments, products with 60% risky assets and 40% safe assets (including income type) would be suitable."

Investment in gold is also expected to be useful. Lim So-young, head of the WM Center at NH Investment & Securities Mokdong, said, "With the Federal Reserve’s (Fed) interest rate cuts beginning, gold prices have hit new highs for three consecutive months," but added, "Considering that the interest rate cut cycle has just started and the demand for safe assets due to economic and geopolitical concerns remains valid, we suggest long-term installment investments in gold."