Korean Pension Withdrawal Tax Calculator

Once you start drawing a pension from a pension savings or IRP account, the payments are taxed. The tax credit you received when paying in is collected again, at a lower rate, when the money comes out. This calculator takes your age, the private pension you receive in a year, any other income, and your comprehensive income deductions, and works out the tax and the amount you keep. The method changes once annual receipts exceed ₩15 million: at or below it the calculator picks the lower of final withholding and adding the pension to comprehensive income, above it the lower of comprehensive taxation and the optional 15% separate tax, and tells you whether you would in fact keep more by drawing exactly ₩15 million.

Severance pay drawn as a pension rather than a lump sum is handled separately. Drawn within the annual pension limit, that part is taxed separately whatever the amount, with a discount on the retirement income tax that a lump sum would have carried, so the calculator shows how much the discount saves.

People about to start their pension who need to decide how much to draw each year. The financial institution lets you choose the period and the amount, and the tax follows that choice. Anyone with other income such as the national pension or rent should measure carefully, because a zone of loss opens up around ₩15 million.

It is also for people already drawing a pension who have heard that crossing ₩15 million is a disaster. In reality, with no other income you can elect comprehensive taxation on either side of the line and pay less, and even with other income the loss zone is narrow. The calculator shows where that zone ends in your own figures, so the decision rests on numbers rather than rumour.

Withholding rates on private pensions are set by age in 소득세법 제129조제1항제5호의2: 5% under 70, 4% from 70 to under 80, and 3% from 80. A lifetime annuity paid until death is taxed at 3% under the same paragraph, and where both apply the lower rate is used. Local income tax of 10% of the income tax is added. If private pension receipts for the year are ₩15 million or less, 제14조제3항제9호다목 makes this withholding final. The bracket in the same item, though, excludes cases where you choose to add it in, so even at ₩15 million or less you may file it as comprehensive income, and the calculator takes the lower of the two.

Above ₩15 million, the whole year's private pension becomes comprehensive income. The pension income deduction in 제47조의2제1항 comes off first: the first ₩3.5 million in full, then at falling rates, up to a cap of ₩9 million. Other income is added, comprehensive deductions are subtracted, the basic rates in 제55조제1항 apply to the tax base, and the ₩70,000 standard tax credit for people without wage income (제59조의4제9항제2호나목) comes off. 제64조의4 offers an alternative of a flat 15% on the private pension alone, so the calculator computes both and takes the lower. Severance pay drawn as a pension is taxed under 제129조제1항제5호의3 at the lump-sum rate multiplied by 70% for the first 10 years of receipt, 60% up to 20 years, and 50% after that.

Take the calculator's defaults: age 65, a private pension of ₩12,000,000 a year, no other income and ₩1,500,000 of deductions. That is under ₩15 million, so it can be settled by withholding at 5%: income tax of ₩600,000 plus local income tax of ₩60,000, ₩660,000 in all, or 5.5% of the receipts. Adding it to comprehensive income is cheaper, though. The ₩5,900,000 pension income deduction and ₩1,500,000 of deductions leave a tax base of ₩4,600,000; 6% of that is ₩276,000, less the ₩70,000 standard credit is ₩206,000, or ₩226,600 with local tax. Withholding still happens, so the difference comes back only if you add it in the comprehensive income tax return the following May.

If the same person draws ₩15,010,000, comprehensive taxation applies. The pension income deduction of ₩6,401,000 and the ₩1,500,000 comprehensive deduction leave a tax base of ₩7,109,000, after the ₩70,000 standard credit the tax including local tax is ₩392,194, and ₩14,617,806 is kept. That beats the ₩14,608,400 kept on exactly ₩15 million filed comprehensively, so crossing the line costs nothing here. Add ₩10,000,000 of other income and the picture changes: the tax base rises to ₩17,109,000, the tax attributable to the pension becomes ₩875,985, and ₩14,134,015 is kept, ₩40,985 less than on ₩15 million exactly settled by withholding. That loss ends at receipts of roughly ₩15.06 million.

The first is believing that crossing ₩15 million always loses money. With no other income the pension income deduction makes comprehensive taxation cheaper, and you can elect it even under the line; with other income the loss zone is narrow. The second is the opposite complacency. With substantial other income the comprehensive rate climbs, the 15% option becomes the one to take, and even that is well above the 5% paid under the line. The third is counting severance-based pension towards the ₩15 million. Within the annual pension limit that part is taxed separately regardless of amount and never enters the line.

The fourth is leaving the national pension out, or entering it as "other income". Public pensions always count as comprehensive income, and when the private pension is added in, the pension income deduction is worked out once on the combined total (제47조의2제1항). So the national pension belongs in its own box for the test to come out right. The fifth is misreading the age rates. The rate is fixed by your age on the day of payment and steps down at 70 and 80, so the same amount carries less tax the later it is drawn. If the money is not needed urgently, starting later and spreading receipts over a longer period is the tax-efficient choice.