iDeCo in English

What are you waiting for?

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iDeCo is probably the best investment option for almost everyone who is planning to stay in Japan until retirement.

It gives you a decent tax break, tax-free investing, and a mostly tax-free payout at the end. It forces you to invest regularly over the long term and doesn’t let you touch your money until you are 60 years old.

I’m a huge fan.

If you already have an iDeCo account, congratulations. You’re part of a tiny minority of people in Japan.

iDeCo might not be a good fit for some people.

  1. If you are planning to leave Japan well before you hit 60, iDeCo might not be suitable for you.
  2. If you are not paying into the national pension scheme, you cannot open or pay into an iDeCo account.
  3. If you are a US citizen under 50, iDeCo might not be a great option yet.
  4. If you don’t currently pay income tax, iDeCo is much less attractive (but might be worth doing for the tax-free investing).
  5. If you are enrolled in certain company DC pension schemes (check with HR to be sure, as some schemes also allow you to have a personal iDeCo account while others don’t).
  6. If you are over sixty years old.

If you are not in one of the six categories above, I really think you should consider opening an iDeCo account. It’s relatively straightforward, you can ‘set and forget’ it, and you’ll likely end up much better off in the long run.

Useful iDeCo resources in English

I was finally able to open my own iDeCo account this year (public servants/mutual aid association members finally became eligible from January this year) so I’ll be doing a round-up/report on how it’s going next week.

How about you? Do you have an iDeCo account? How are you getting on with it? Any good reason not to open an account that we didn’t mention?

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9 Responses

  1. I’d add one important limitation: you cannot open an iDeCo if you are already contributing to specific company-sponsored plans*, which is my case, and I would assume the case for a lot of “salarymen” working for companies with reasonable benefits.
    * Basically 401k equivalents, or in other words, “you cannot open an iDeCo if your company already opened a tax advantaged retirement account for you” –> Probably stating the obvious, but I wouldn’t be surprised if lots of people working in Japan are actually unaware that they are already enrolled into something similar. Most people in my company haven’t logged in to that account at all and barely know what it does, if my anecdotal survey is any proof.

    1. Great point! It’s slightly more nuanced, in that some company DC plans do allow you to also open personal iDeCo accounts.
      Best option is to check with HR.
      You’re right about people being unaware: I have helped two people already (Japanese people working for normal companies) who had company DC accounts but had never logged in. When we logged in together we found that all their money was in cash -the default setting!
      I helped them set a reasonable portfolio and left them to it. Pretty tragic if they’d left everything in cash for 30 years though, eh?

  3. Why is this not a great option for a US citizen specifically under 50? Same problems with NISA, i.e. potential US tax exposure? (Not sure why that would change at 50… ) Otherwise it sounds good, but I have a couple years left before I hit that particular benchmark…

    1. Yes, it’s IRS rules. I think there is no problem on the Japanese side, but I believe the IRS treats foreign mutual funds in a very hostile manner, and currently in iDeCo the only investment options are mutual funds.

      1. Thanks — interesting. So nothing special changes at 50 years of age that makes it more appealing, then, eh? May be time to revisit applying for Japanese citizenship…

      2. No, the thinking behind the (arbitrary) 50 guideline is that US citizens should probably keep their iDeCo balance in cash, so locking up cash for ten years might be worth it for the big income tax reduction, but locking up cash for longer might not be worth it.