2025 IRP & Pension Savings Tax-Saving Tips 💰 – Tax Credit Limits and Essential Strategies for Employees

As of 2025, one of the best ways in Korea to save on taxes while preparing for retirement is through the IRP (Individual Retirement Pension) and Pension Savings Plans. Many people say:

“I know I should sign up, but I don’t really understand the difference, or how much I can actually save in taxes.”

In 2025, with changes in tax laws, the tax credit limits have been updated and certain rules have become stricter. That means you need to understand the details before joining—otherwise, you could lose out.

This article explains the latest tax-saving strategies under the current law, shows practical calculation examples, and highlights the best choices for employees, freelancers, and self-employed workers.

IRP and Pension Savings Basics 📂

A Pension Savings Plan is an account you open yourself to build retirement funds. You can sign up through banks, securities firms, or insurance companies, and you can invest in funds, bonds, ETFs, deposits, and more.

An IRP, on the other hand, was originally created to manage severance pay, but now anyone can open one. Beyond just severance funds, individuals can make additional contributions and receive tax credits as well.

In short:

• IRP = retirement pension account (severance + personal contributions)
• Pension Savings = personal retirement account

The structure is similar, but their starting points differ. Still, the way tax benefits are applied is nearly the same.

2025 Tax Credit Limits & Savings Effect 📊

The most important factor is the tax credit limit.

• Pension Savings alone: up to ₩4 million per year eligible for tax credits
• Pension Savings + IRP combined: up to ₩7 million per year

Example:
If a salaried worker earning ₩50 million contributes ₩3 million to a Pension Savings Plan and ₩4 million to an IRP (₩7 million total), and their tax credit rate is 16.5%, they could get back about ₩1.15 million in tax refunds.

For higher earners in a lower tax credit bracket (13.2%), the refund is smaller—around ₩920,000—but still significant. With a single annual contribution, you could save over a million won in taxes every year.

IRP vs. Pension Savings – Which Comes First? 🤔

Many ask: “Should I start with a Pension Savings Plan or an IRP?”

The answer is simple:

• Start with a Pension Savings Plan
• Then use the remaining limit for the IRP

Why? Because withdrawals are easier with Pension Savings—cancellations or partial withdrawals are relatively flexible. With IRPs, withdrawals are heavily restricted—you can only withdraw early for specific reasons such as retirement, buying a home, or medical expenses.

So, for liquidity, Pension Savings is better.
But for maximum tax savings, you’ll want to use both accounts together.

Tax Strategies by Occupation 👩‍💼👨‍💻

• Employees: In addition to your company’s retirement pension, contribute to both a Pension Savings Plan and an IRP. The higher your salary (and thus your tax bracket), the greater your tax savings.
• Freelancers & Self-Employed: Since there’s no employer pension plan, it’s essential to use Pension Savings and IRPs. Tax credits are especially impactful if you have limited deductible expenses, since your taxable income tends to be higher.

Extra Tax-Saving Tips ✨

1. Use both Pension Savings & IRP to maximize the full ₩7 million tax credit limit.
2. Avoid early withdrawals—the longer you invest, the greater the compound and tax-saving effect.
3. Diversify your investments. IRPs require a mix of principal-guaranteed and investment products, so balance with ETFs and bonds for stability and growth.

Final Thoughts 📝

In 2025, IRPs and Pension Savings Plans are not just retirement accounts—they are powerful tax-saving tools. By contributing the annual ₩7 million limit, you can get back hundreds of thousands to over a million won in tax refunds.

The key is this: the earlier you start, the bigger the compounding and tax benefits. Whether you’re a new employee, freelancer, or business owner, now is the best time to open an account and start building both your retirement savings and your tax refunds.