Are you saving for retirement or paying the state?
What exactly is a DIP?
A DIP is an investment account you open with a bank, securities broker or investment company. Unlike traditional pension savings, you decide for yourself what to invest in – shares, ETFs, bonds or funds. No preset strategies, no ‘conservative portfolio’ that barely grows in real terms. Just you and your choices.
There are two conditions: the contract must run for at least 10 years, and you must not withdraw funds before reaching the age of 60. If you meet these conditions, the state offers you a tax deduction.
How much can you deduct for tax?
And now for the interesting part. You can deduct contributions to a DIP from your tax base, up to 48 000 Kč per year. This limit applies jointly to all other so-called long-term savings products – namely pension savings and life insurance.
What does this mean in practice?
If you are an employee in the 15% tax bracket and put 48 000 Kč a year into a DIP, you save 7 200 Kč in tax. If you are in the 23% bracket, the saving is up to 11 040 Kč per year.
Put simply, the state returns part of your investment through lower tax. It is not free: your money is tied up. But for anyone for whom long-term investing makes sense, it is a worthwhile extra bonus.
What about employer contributions?
If your employer contributes to your pension savings or life insurance, from 2024 they can contribute to a DIP as well. Employer contributions are exempt from income tax and insurance contributions for you, up to 50 000 Kč per year (in total across all long-term savings products).
So, if your employer contributes, for example, 2 000 Kč a month to your pension savings, you can agree with them to direct part or all of that contribution to your DIP – without paying a single extra crown in tax or insurance contributions.
DIP or pension savings – which should you choose?
Honestly? You do not have to choose. You can combine both options, and the 48 000 Kč limit applies to them jointly.
The main difference lies in flexibility and potential returns. Pension savings include a state contribution (up to 340 Kč a month when you contribute 1 700 Kč or more), but conservative funds tend to generate modest returns. A DIP has no state contribution, but you have freedom over your investment strategy – and historically, a well-diversified portfolio can deliver significantly more.
TIP! If you are just starting out, do not close your pension savings account – the state contribution is free, and it would be a shame not to use it. But if you have more room to save, a DIP can be an interesting addition.
What should you watch out for?
The conditions are clear, but failing to meet them hurts. If you withdraw the money early or breach other contractual conditions, you must reverse all tax deductions claimed over the past 10 years and pay tax on them. This is not an empty threat – you need to take it into account. Insurance companies report early contract terminations to the tax office, and at least once a year a client draws this figurative short straw and we have to deal with the additional tax.
A DIP is not for everyone, but it is definitely worth considering for those who think long term and also want to optimise their taxes. If you are unsure whether you would benefit more from increasing your pension savings or opening a DIP, get in touch. We will gladly work through the figures with you. 🌿