NISA for a non-working spouse

[TJKansai]

I would say their priorities should be His iDeco -> Her Tsumitate Nisa -> Her iDeco

Completely agree. Although I would do his iDeCo, both tsumitate NISAs, then her iDeCo if funds allow

Can a working spouse fund a non-working spouse's iDeCo? I would have thought it is not possible.

[Kanto]

I would say their priorities should be His iDeco -> Her Tsumitate Nisa -> Her iDeco

Completely agree. Although I would do his iDeCo, both tsumitate NISAs, then her iDeCo if funds allow

Can a working spouse fund a non-working spouse's iDeCo? I would have thought it is not possible.

You have two things to work with...

(1) The gift tax limit 1.1 million yen per person per year


(2) A spouse can reimburse a spouse for household expenses. (This is not covered by the gift tax rule)

[RetireJapan]

Can a working spouse fund a non-working spouse's iDeCo? I would have thought it is not possible.

Yes, but 1) it will count as a gift if they go over the 1.1m a year gift tax-free allowance, and 2) there won't be any income tax benefit

So for most non-working spouses NISA might be a better option to start with.

[TJKansai]

Can a working spouse fund a non-working spouse's iDeCo? I would have thought it is not possible.

Yes, but 1) it will count as a gift if they go over the 1.1m a year gift tax-free allowance, and 2) there won't be any income tax benefit

So for most non-working spouses NISA might be a better option to start with.

That's good to know. My wife (J) has a Tsumitate NISA, but I had thought iDeCo was only for working folk. Guess it makes sense to fund it for her, though just 276,000 per year according to this table. https://www.ideco-koushiki.jp/english/

[beanhead]

That's good to know. My wife (J) has a Tsumitate NISA, but I had thought iDeCo was only for working folk. Guess it makes sense to fund it for her, though just 276,000 per year according to this table. https://www.ideco-koushiki.jp/english/

We went through this same thought process. If you are doing any investing in the taxable account, it makes sense to take that small portion and put it into your spouse's iDeCo, even if they do not work enough to pay tax.
That is the conclusion we came to anyway. Only 276,000 per year for me too, but it all adds up.

[adamu]

That's good to know. My wife (J) has a Tsumitate NISA, but I had thought iDeCo was only for working folk. Guess it makes sense to fund it for her, though just 276,000 per year according to this table. https://www.ideco-koushiki.jp/english/

Only 276,000 per year for me too, but it all adds up.

Even if the spouse doesn't pay income tax, you get a bunch of benefits that make it worthwhile IMO:

• Dividend tax free (same as NISA)
• Capital gains tax free when switching funds (Not sure how this works for Tsumitate NISA. It's better than regular NISA. Maybe not relevant if you don't pay income tax? Not sure.)
• Eligible for tax deductions when redeeming (better than NISA)
• Benefits applied until 70 years old. If they do start earning taxable income in the future, all of these benefits are locked in for past payments.

[RetireJapan]

Even if the spouse doesn't pay income tax, you get a bunch of benefits that make it worthwhile IMO:

• Dividend tax free (same as NISA)
• Capital gains tax free when switching funds (Not sure how this works for Tsumitate NISA. It's better than regular NISA. Maybe not relevant if you don't pay income tax? Not sure.)
• Eligible for tax deductions when redeeming (better than NISA)
• Benefits applied until 70 years old. If they do start earning taxable income in the future, all of these benefits are locked in for past payments.

Hi adamu

Not sure about all these, to be honest.

1. currently no dividends are paid inside iDeCo (you get the benefit of internal reinvesting, but you can also do that in taxable accounts)
2. this is a good one, I actually did this the other day and it was very smooth
3. actually, unlike NISA iDeCo is taxed on redemption. It is likely that the tax free allowance will be enough to nullify the tax completely, but it is a possibility. On the other hand NISA is not taxed in any way on redemption. So if someone who is not paying income tax pays into iDeCo they will not get the tax benefit of reducing their income tax, but may end up paying tax on some of their gains. For this reason I think it's best to max out NISA first, then use iDeCo afterwards.
4. Not sure what you mean here!

Sorry to be all nitpicky. I'm not entirely sure I understand this completely myself

[adamu]

1. currently no dividends are paid inside iDeCo (you get the benefit of internal reinvesting, but you can also do that in taxable accounts)

Is this the case? Right now, I believe most of the index funds we know don't pay out dividends. But nothing says that they can't/won't in the future - or that other funds don't. You can even invest in cash that will pay interest. My understanding is that the dividends/interest will be automatically re-invested based on your specified asset allocation. In a NISA, it'll be paid out.

3. actually, unlike NISA iDeCo is taxed on redemption.

This is a good point I hadn't considered.

That was in the context of beanhead and TJKansai having already maxed out the NISA, and considering whether it's worthwhile to do iDeCo too. If you have to pick one, I agree it depends on the situation.

4. Not sure what you mean here!

For example, if you start iDeCo at 35 without having a job, and go 15 years without an income, then you start earning an income at 50.
The obvious point: For the 10 years from 50 to 60 the iDeCo will reduce your taxable income.
But you will also get all the benefits of tax-free compounding of the previous 15 years investments, for a further 20 years - up to 35 years in total.
If you only did Tsumitate-NISA, those benefits would only last another 5 years before you lost the tax-protection a year at a time (unless Tsumitate-NISA implements a rollover system).

Sorry to be all nitpicky.

I like to have my nits picked. Better to be proved wrong than to end up misleading somebody with incorrect information.

[RetireJapan]

1. currently no dividends are paid inside iDeCo (you get the benefit of internal reinvesting, but you can also do that in taxable accounts)

Is this the case? Right now, I believe most of the index funds we know don't pay out dividends. But nothing says that they can't/won't in the future - or that other funds don't. You can even invest in cash that will pay interest. My understanding is that the dividends/interest will be automatically re-invested based on your specified asset allocation. In a NISA, it'll be paid out.

I think that is a bit of a stretch. In practice, all iDeCo investments reinvest internally (including the cash), just like they would in a NISA or taxable account (if you chose mutual funds that reinvest).

There is one more benefit to paying in as a non-earning spouse, at least the minimum 5,000 yen a month: you build up the tax-free allowance, which is calculated based on years of contributions (400,000 yen a year of tax-free allowance for the first 20 years, 700,000 yen a year for the next 10 years). So for some people it might be a good idea to build up the tax-free allowance in advance.

[Kanto]

There is one more benefit to paying in as a non-earning spouse, at least the minimum 5,000 yen a month: you build up the tax-free allowance, which is calculated based on years of contributions (400,000 yen a year of tax-free allowance for the first 20 years, 700,000 yen a year for the next 10 years). So for some people it might be a good idea to build up the tax-free allowance in advance.

Just to clarify, as someone who contributes 816,000 yearly to iDeco, the maximum tax-free allowance for the first 20 years is 400,000 yen yearly?

For non-iDeco contributors do nenkin or DC contributions also contribute to this tax-free amount?

Finally, if one exceeds their yearly tax-free allowance, is it "banked" or "accumulated"?