Interest and Dividend Income from 'Our Children Independence Fund' to Be Fully Tax-Exempt

The government plans to grant full tax exemptions on interest and dividend income generated from investments in the "Our Children Independence Fund," which is designed to help children build a lump sum of about 70 million won by the time they reach adulthood.

The government also plans to allow voluntary subscriptions to the fund for households exceeding 150 percent of the median income, who are not eligible for financial support, as well as children born before August of this year.

The government announced the "Support Measures for the Our Children Independence Fund" containing these provisions during a joint meeting of relevant ministries held today (the 1st) and chaired by Deputy Prime Minister and Minister of Finance and Economy Lee Hyung-il.

The fund is a product where parents subscribe under their child's name, and funds contributed jointly by the parents and the government are accumulated and invested in the capital market over a long period.

The government will provide up to 1.2 million won per year until the age of 18 for children born after September of this year in households with incomes at or below 150 percent of the median income.

Households with incomes at or below 50 percent of the median income will receive a fixed amount of 1.2 million won per year, while those with incomes between 50 and 150 percent of the median income will receive 1 million won per year matched with parental contributions.

The contribution period is up to 19 years, and the contribution limit is planned to be set at 2 million won per year.

Parents can make additional contributions within the limit.

Combining government support and parental contributions, accumulating 2 million won annually for 19 years with an annual return of 6 percent can form an asset of about 70 million won.

To this end, the government has allocated a total of 146.5 billion won in next year's budget and plans to disburse and manage government support funds through the Korea Financial Inclusion Agency.


Interest and dividend income generated from investing in the "Our Children Independence Fund" through a dedicated account will be granted full tax exemption benefits.

All investment returns generated from parent contributions and government support funds paid until the age of 18 after subscribing to the product will be subject to tax exemption.

However, early termination before the age of 19 will result in the collection of a substantial portion of the tax exemption.

If the account is maintained without immediate termination even after the contribution period expires, tax exemption benefits will be applied for a certain period (such as up to the age of 34).

The government is also reviewing plans to allow children in households exceeding 150 percent of the median income who are not eligible for financial support, as well as those born before August of this year, to join and contribute to the fund.

Tax exemptions on interest and dividend income will also be applied to the voluntary contributions of voluntary subscribers within the 2 million won annual limit.

Considering the compounding effect through long-term investment, early termination will be permitted only under restricted conditions.

Reasons will include death, overseas emigration, natural disasters, retirement, business closure, and injury or illness, similar to the Youth Future Savings account.

Plans are also under review to flexibly allow withdrawals up to the age of 34 after the maturity at age 19 is reached.

It will be linked with post-maturity asset-building projects, financial education, and financial counseling programs.

The detailed structure of the fund is planned to be discussed with comprehensive consideration of profitability and universality.

Considering overseas cases and portfolio diversification effects, the target assets for investment will be specified, and qualified management entity requirements such as accountability and expertise will also be reviewed.

The government stated, "We will materialize the fund operation plan through discussions with relevant agencies and experts, alongside deliberations in the National Assembly on the government budget bill and the Amendment to the Restriction of Special Taxation Act," adding, "After building the computer system and completing practical preparations, we will launch the fund in the second half of next year."

(Photo provided by the Ministry of Finance and Economy, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.