Choosing to have iDeCo withdrawn from bank, what happens with taxes?

[JimNasium]

I work for a small company with about 10 full time and 3 part time employees. Although I really like working there, I’m not 100% sure about the future, so I decided to have my iDeCo withdrawn from my bank account. I have a few questions about that.

1. Previously my company did my income tax reporting. Now that I have my iDeCo going, do I need to start doing my own taxes?

2. If I understand right iDeCo is taken pre-tax from my salary. If I choose to have it withdrawn from my bank, how do I receive the tax benefits of that? Is it an end of year adjustment? Or is my tax payment automatically adjusted each month?

[adamu]

The pension association sends you a certificate towards the end of the year with your iDeCo payments for the year listed (last few months are predicted).

On your end of year tax adjustment, you attach the certificate, as well as writing the total payment amount in the 小規模企業共済等掛金控除 / 確定拠出年金法に規定する個人型年金加入者掛金 section.

Your employer then pays you back the income tax you already paid on your iDeCo investments in your December salary.

[JimNasium]

Got it! Thanks so much for your help. So it will be like getting a small end of year bonus.

[Wales4rugbyWC23]

I just started the 小規模企業共済等掛金控除 in September and did not receive a payment receipt from them. However, my accountant says that if is shown that the payment was paid from your bank book in those months then it can be a tax deductible for that year.

[Butterball]

Thanks so much for explaining that Adamu; I feel pretty dumb. I'm in the same boat as OP and I thought the tax refund involved the income tax return. I didn't realize it was the end of year adjustment. I overlooked that part of the adjustment form because it's never been relevant to me before. I guess I missed out on my tax refund this year (ie 2020) but at least I won't make that mistake twice.

[RetireJapan]

I thought the tax refund involved the income tax return. I didn't realize it was the end of year adjustment. I overlooked that part of the adjustment form because it's never been relevant to me before. I guess I missed out on my tax refund this year (ie 2020) but at least I won't make that mistake twice.

Either are options. You can submit it to your company if they do your taxes for you, or to the tax office if you do a tax return.

[Roger Van Zant]

The pension association sends you a certificate towards the end of the year with your iDeCo payments for the year listed (last few months are predicted).

On your end of year tax adjustment, you attach the certificate, as well as writing the total payment amount in the 小規模企業共済等掛金控除 / 確定拠出年金法に規定する個人型年金加入者掛金 section.

Your employer then pays you back the income tax you already paid on your iDeCo investments in your December salary.

Eh? You "already paid" income tax on your iDeCo investments? That doesn't sound right. I thought iDeCo was tax-free on the way in and tax-free on the way out?

[adamu]

Eh? You "already paid" income tax on your iDeCo investments? That doesn't sound right. I thought iDeCo was tax-free on the way in and tax-free on the way out?

You are entitled to not pay tax on the investments. But the way it works in practice (when you make the payments yourself) is that the deposits are taken from your post-tax income (AKA your bank account), and you claim a tax refund every year. In other words, iDeCo is not taken account all year when your employer deducts your taxes from your salary, then you settle-up in the end of year adjustment. Not sure what happens if your employer makes the payments on your behalf.

I guess I missed out on my tax refund this year (ie 2020) but at least I won't make that mistake twice.

Either are options. You can submit it to your company if they do your taxes for you, or to the tax office if you do a tax return.

+1. You're still in time to submit a tax return, which would get you the refund too (not sure if you can claim earlier years if you don't do either).

[RetireJapan]

Not sure what happens if your employer makes the payments on your behalf.

Tax is reduced at source, each month. That is why having it taken out of your paycheck is the best option. Sadly employers have the right to refuse to do that though.

[adamu]

Sadly employers have the right to refuse to do that though.

That's what happened to me. The first time they even ticked the section I was supposed to fill that said "I want to pay individually". I ordered a new form and made them tick the box that said "applicant wants to use salary deductions, but we require them to pay individually". Hopefully it got recorded in a statistic somewhere, at least. I'd like to believe the two week delay to the application was worth it.

I don't work there anymore. However, when I moved jobs, I was glad to be doing the individual payments. One less thing to go wrong.