Is it actually worth doing?
We actually wrote about this last year, but a friend of my wife’s asked me about it last week and I realised I didn’t have a good understanding of all the factors, so I figure I might as well get a blog post out of doing the research (and it might be useful for some of our readers).
What is iDeCo?
iDeCo is a type of pension product designed to encourage individuals to invest for retirement instead of depending solely on nenkin (which probably won’t be enough), or keeping their money in the bank or under a mattress.
The name iDeCo stands for individual defined contribution pension account. What that means is that you can put a certain amount of money into the account, and then depending on how you invest it you will end up with a certain amount of pension lump sum or income.
iDeCo is a great option for many people because the government will give you several substantial tax breaks to encourage you to use the account.
What is a dependant spouse?
A dependent spouse is someone who is married to a person paying into kosei nenkin (or kyousai kosei nenkin) who can receive free health insurance and pension contributions. People married to people who are paying into kokumin nenkin cannot get this benefit.
If a dependent spouse makes less than 1.03 million yen per year, they do not have to pay income tax and can remain a dependent.
If they make more than 1.03 million but less than 1.06 million they can remain a dependent.
If they make more than that but less than 1.3 million and do not fulfil all the following criteria they can remain a dependent:
- Work more than 20 hours a week
- Make more than 88,000 yen a month
- Work more than one year
- Are not a full-time student
- Work for a company with more than 501 employees
Can dependant spouses use iDeCo?
Yes.
The newest version of iDeCo allows dependent spouses to pay up to 23,000 yen a month into iDeCo (minimum is 5,000, and you can choose any multiple of 1,000 yen above that).
What are the advantages of iDeCo for dependant spouses?
Well, if they earn more than 1.03 million yen and therefore have to pay income tax, paying into iDeCo should allow them to push their income below the limit again.
iDeCo also allows for tax-free investing while operating the account, and there is a fairly generous tax-free allowance when cashing out.
Is iDeCo worth doing for dependant spouses?
Maybe. If there is no income tax benefit because the person does not pay income tax, perhaps tsumitate NISA might be a better option (also tax-free investing, but with no restrictions on accessing the funds).
However, iDeCo is a good way for dependent spouses to beef up their retirement finances using accounts in their own name.
Can iDeCo be used to reduce income and stay a dependent spouse?
From what I have read this is not possible. It seems as though dependent spouse status is determined by income before the iDeCo deduction kicks in, so it is not possible to use iDeCo to earn more than the 1.3 million yen a year cap.
So…
Well, we have learned that iDeCo is not a way for dependent spouses to earn more and keep their status 😉
It may make sense for dependent spouses to use iDeCo to invest, but they may be better off using tsumitate NISA first and only going on to iDeCo after maxing out their NISA allowance.
How about you? Any experience with iDeCo as a dependent spouse?
You left out one important fact. Many of us males married to Japanese women are much ilder than they are. Once the primary bread winner hits 65 the spouses nenkin payments are no longer covered and she will have to play catch-up and they send you the bill quite late. Sort of a shock.
You will also be billed for kaigo late…and the tax bill for local taxes from not paying the first year is a doozy! ¥500,000 for me.
If you are in shigakukyosai, keep it going for two more years as they allow that. Premiums the same. Not doubled.
That’s a good point but it’s kind of included in ‘people married to someone paying into kosei nenkin’. If you stop paying into kosei nenkin then it no longer applies.
Local inhabitants tax is always paid a year in arrears, based on the previous year’s income so coming out of work you’d have to pay the previous year’s tax with no income. Probably not ideal if you hadn’t budgeted for it.
This is something I’ve been thinking about too.
I can see more advantages to it if the dependent spouse intends earn above the tax-paying threshold at some point in the future in terms that:
*Paying in for longer increases your tax-free allowance at the end
*Starting payments before you reach 50 ensures that you can withdraw your money at 60
*Setting up an ideco account is quite time consuming so you could miss out on several months of tax deductions if you didn’t apply until after becoming a non-dependent spouse
That’s a great point. And paying in the minimum would be enough to get both of those benefits.