More NISA Changes

Some good, some bad

One of our RetireJapan forum posters spotted this news story: it seems the government is considering making some changes to the NISA accounts.

According to the article linked above, people aren’t really using the accounts, but bureaucrats are reluctant to extend the duration as they are worried about losing tax revenue.

They may be angling towards a compromise: a longer tax-free period of 20 years, but half the contribution amount (600,000 yen a year). It seems this new account wouldn’t replace the current NISA, but provide an alternative. Investors will choose between the shorter, bigger NISA account or the longer, smaller one each year.

It’s a tough call, but I would probably go for the longer-term account. 20 years of tax-free dividends and capital gains are hard to pass by!

How about you? Do you already have a NISA account? Do you max it out (this makes you very rare, according to the government)? Would you choose the new NISA account over the current one?

10 Responses

  1. I have a maxed out ISA (which incidentally I’m currently at a loss on because I misunderstood it when i started out), but I think a combination of three things are stopping their popularity.
    1. The fact that they’re impossible to understand. Just look at the 5 year step diagram every NISA provider shows you before you open an account. If it was simpler, like, permanent, maybe it’d get more take-up. Imagine being able to say “Put in up to X every year and it stays tax free”. Simple.
    2. It’s too inflexible. First, rather than being a wrapper, which would allow you to sell things you bought, it’s more like a flag on new investments. So if you buy something and change your strategy or want to rebalance but you’re out of allowance, you’re stuck with your choice. It would be nicer if they counted the cash deposit as the contribution, then allowed you to do what you want once they money was in, rather than marking every purchase down against your allowance. I’d also like to see dividend reinvestment (maybe this is just my provider / choice of investments?), but not being able to reinvest dividends efficiently also makes them less effective.
    3. A general lack of interest in investing. I don’t think I know anybody personally that owns stocks. And even when I wanted to make an account, most providers seem to only sell their own dodgy mutual funds, unless you go directly to a broker.

    1. You have hit the nail on the head. Basically I have come to the conclusion that a NISA account is only good for holding an ‘all-in-one’ automatically re-balancing passive investment fund of bonds and stocks due to the fact that you can’t self re-balance within the NISA wrapper. At the end of the 5 years you then cash out your tax free profits (if any) and reinvest in a new 5 year fund. Better than nothing I guess but still pretty weak beer IMO.

      1. That is probably the best option. Any contenders on Rakuten?
        I’ve been buying dividend stocks in my NISA, but there are probably more efficient ways of using it…

      3. I beg to differ regarding the use of NISA in this scenario.
        Given that it allows for tax-free investing, would it not make more sense to place tax-inefficient investments inside NISA (e.g. dividend paying stocks/funds), and to place tax efficient investments inside the 特定口座? (e.g. funds that automatically reinvest or rebalance)
        Thus if one wants to rebalance within NISA, it would be more efficient to do so by purchasing more of the underperforming component when dollar cost averaging.
        Disclaimer: The above strategy is how I rebalance within NISA as well

      4. Reply to Desmond
        I don’t really think it makes a difference in the end. Those balanced funds are converting the dividends and interest to capital gains. If the funds paid dividends and interest in cash it would net out the same except you may not be able to reinvest that cash into NISA if you have already maxed out the cap.
        DCA is a good strategy but only works up to the limit and sometimes you may want to sell to rebalance, not just buy.

  2. Hi MO
    Thanks for the great comment! I completely agree with all three of your points. It’s almost like the MoF bureaucrats sat down and said, “okay, so the politicians decided to start NISA, how can we make it as unattractive as possible within the guidelines?”

    1. Hmm, sounds like a pattern with the Japanese government. Turn a good idea into something so broken and unclear nobody wants it.

  3. My intuition tells me that the 20 years actually means two tax free time periods of 10 years – at the end of the first 10 year period, we can choose to roll over 600,000 yen into the next 10 year period, or move in into the taxable account.
    This will inevitably affect the total assets that we can accumulate at the end of the 20 year period, compared to the current 5 year scheme (extended once).
    Until more information is released, this is at best speculation and would result in meaningless number crunching.

    1. That would be a different kettle of fish indeed.
      Hope it’s 20 years per account, then you can rack up a decent amount in NISA (12 million in year 20 as opposed to max 6 million in year 5 now).