NISA for a non-working spouse

[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.

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).

Having checked, this is a bit of a moot point because you're basically right in terms of the outcome. But on a purely technical level, there are funds that pay out dividends, and the iDeCo does the reinvestment (rather than the fund doing it internally).

Looking through the SBI iDeCo lineup, there are 19 funds that pay out dividends. Unfortunately I can't link to the results, but you can see them by changing 決算頻度/分配金額 here:

https://site0.sbisec.co.jp/marble/insur ... ksearch.do?

And from the FAQ (again, can't link, and you also need to be logged in ).

分配金が出たら現金で受け取れますか？
確定拠出年金制度では、投資信託に分配金が出た場合は自動的に同じ商品の購入に充てられます。そのため分配金が出た場合に現金として受け取ることはできません。

So while it happens, it is practically the same as a re-investing fund, because the dividend is paid back into the same fund (not paying out cash and re-investing according to the asset allocation, as I had assumed).

However, it's not the same as NISA.

This fund, for example
https://site0.sbisec.co.jp/marble/fund/ ... rch_result

Is available in NISA and iDeCo. But you can only re-invest the dividends in iDeCo.


Edit: 1000th post!

[RetireJapan]

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"?

This is somewhat confusing, my apologies for not being clear. The government really could have made this a bit easier, like by just saying that iDeCo is tax-free

The tax-free allowance is the retirement bonus allowance (退職金控除): https://www.nta.go.jp/taxes/shiraberu/t ... u/1420.htm

Again, I'm not 100% sure about this, but I understand that you acculumate it as (year 1-20 x 40万, plus year 21-30 x 70万) for a maximum tax-free amount of 15m yen.

Retirement bonus, iDeCo, and DC pensions(?) share this allowance. If your iDeCo or retirement bonus is above your tax free allowance, any funds that exceed it are taxed as follows:

Half of the excess amount is taxed as ordinary income.

So let's say you build up the full 15m allowance, and you get 20m from your iDeCo. 15m will be tax free. Half of the remaining 5m, ie 2.5m will be taxed as ordinary income.

There are rules for resetting your allowance, which I will be looking into next year because I will be getting a retirement bonus from my employer, then hoping to build up my iDeCo tax-free allowance for the next couple of decades...

[Kanto]

Half of the excess amount is taxed as ordinary income.

Thank you for the response! I was not aware of this fact.

Basically, this just confirms what I had originally thought. I should keep maxing out my iDeCo, past 15million yen.

Especially considering how pathetic nenkin is for those who are self-employed.

[RetireJapan]

Basically, this just confirms what I had originally thought. I should keep maxing out my iDeCo, past 15million yen.

I think for most people paying income tax, the tax savings and potential to compound should offset the eventual tax bill (if there even is one).

[adamu]

Remember that you can choose to deaccumulate over 5-20 years instead, in which case you get the pension deduction for each withdrawal instead of the taishoku one.

I'm not sure which works out better though.

[RetireJapan]

Remember that you can choose to deaccumulate over 5-20 years instead, in which case you get the pension deduction for each withdrawal instead of the taishoku one.

I'm not sure which works out better though.

That's a good point, although I think the pension deduction is shared with nenkin so will involve more calculations...

You became a Sage. Nice one