[PB Notebook] Tax Saving Strategies Using Financial Products

Jeon Inhee, Team Leader of Shinhan Bank PWM Bundang Center

As income increases, tax burdens naturally tend to grow as well. In such situations, effectively utilizing financial products can provide a way to reduce taxes efficiently. By carefully selecting and using financial products with tax benefits, one can reduce not only income tax but also inheritance and gift tax burdens.

Pension savings and Individual Retirement Pension accounts (IRP) are representative tax-saving products that offer tax credit benefits during year-end tax settlements. Pension savings allow a tax credit of up to KRW 6 million annually, while IRP offers up to KRW 9 million. By subscribing to these products, one can receive a tax credit ranging from 13.2% to a maximum of 16.5% of the contribution amount. Contributions can be made up to KRW 18 million per year, and during the contribution period, these amounts are not included in comprehensive financial income taxation. Upon withdrawal, separate taxation applies, providing significant tax-saving effects for high-income earners. When received as a pension, the tax rate applied depends on the pension receipt age, allowing for both retirement preparation and tax-saving benefits simultaneously.

Savings-type insurance is a tax-exempt financial product where interest income generated after maintaining the policy for more than 10 years is exempt from income tax. It is the only tax-exempt product available to customers subject to comprehensive taxation due to financial income exceeding KRW 20 million annually. For lump-sum types, benefits apply up to KRW 100 million per person, and for installment types, benefits are available with monthly payments capped at KRW 1.5 million for a minimum of 5 years. However, early termination disqualifies the tax exemption benefits, so it is important to subscribe with a long-term plan in mind.

The Individual Savings Account (ISA) is a product that allows management of various financial products within a single account. Currently, contributions of up to KRW 20 million per year can be made for a maximum of 5 years. A single account can hold various financial products such as deposits and funds, and partial tax exemption benefits apply to interest and dividend income generated. In a general account, 15.4% income tax is withheld on interest or dividends before the remaining amount is received, but in an ISA account, taxation is deferred during the operation period, allowing reinvestment of interest or dividends.

Additionally, tax savings through financial products such as the Housing Subscription Savings and Youth Income Deduction Long-term Fund are important strategies to reduce tax burdens alongside long-term asset growth. It is essential to plan asset management strategically by fully utilizing the tax benefits offered by various financial products. Since tax-saving products generally require long-term investment, it is necessary to carefully select products that match one’s financial situation and goals.

Jeon In-hee, Team Leader, Shinhan Bank PWM Bundang Center