Is the ideco worth it in my situation?

[Dan333]

Im a long term resident here in Japan with plans to retire here. Due to my job I do not pay income tax or residence tax. From what ive seen the major advantage of the ideco is that contributions are tax deductible, a downside being it cant be withdrawn until you are 60. But it seems I cannot make use of that advantage. Are gains completely tax free? Would I be better off just using a general investment account? (I max out my NISA)

[JapaneseMike]

My understanding is that the contributions and the payout are tax free (invest in pre-tax income, realise gains at withdrawal time without tax burden) so even if you don't get both benefits, 1/2 the benefit is still worth it in my opinion

[Moneymatters]

My understanding is that the contributions and the payout are tax free (invest in pre-tax income, realise gains at withdrawal time without tax burden) so even if you don't get both benefits, 1/2 the benefit is still worth it in my opinion

Hi. When you withdraw you are liable for tax on the full value of the fund.
All the money you invested and any gains. But you have a major allowance before tax is calculated..
Less than 20 years paying in. 40万 per yer.
21+ years. The allowance is 800万 + (70万 for each year over 20.)

Anything over your allowance is: divided by two (halved) then taxed at your marginal income tax rate. So basically added to whatever income you may have for that year. (You also have an option to take as a pension over several years rather than a lump sum.)

Let's say you manage to get a fund value 1,000万 over 15 years.
Your allowance is 15 * 40万 = 600万.
Amount over the allowance 400万. Halved = 200万
200万 is the income you would be taxed on.

Please note I could be completely wrong..
Please please note. Those allowances are shared with whatever retirement allowance your employer may be providing. 退職金.

[zeroshiki]

My understanding is that the contributions and the payout are tax free (invest in pre-tax income, realise gains at withdrawal time without tax burden) so even if you don't get both benefits, 1/2 the benefit is still worth it in my opinion

Hi. When you withdraw you are liable for tax on the full value of the fund.
All the money you invested and any gains. But you have a major allowance before tax is calculated..
Less than 20 years paying in. 40万 per yer.
21+ years. The allowance is 800万 + (70万 for each year over 20.)

Anything over your allowance is: divided by two (halved) then taxed at your marginal income tax rate. So basically added to whatever income you may have for that year. (You also have an option to take as a pension over several years rather than a lump sum.)

Let's say you manage to get a fund value 1,000万 over 15 years.
Your allowance is 15 * 40万 = 600万.
Amount over the allowance 400万. Halved = 200万
200万 is the income you would be taxed on.

Please note I could be completely wrong..
Please please note. Those allowances are shared with whatever retirement allowance your employer may be providing. 退職金.

I didn't know this so I just looked it up. You can pull out money from iDeCo in 2 ways. The one described above is the one-time payment from iDeCo and it receives tax advantage from 退職所得控除 which is the retirement money tax break. If you receive retirement money from your company separately, it shares the tax break with that.

The other way to receive money is to as a sort of monthly/yearly pension which qualifies it for the 公的年金等控除 which is the pension tax break. Based on the name I assume it means that you have to add it to your actual pension to calculate how much you go over and how much is taxable. The amount seems really high though so for most people its effectively tax free.

[adamu]

More importantly, I want to know what it is about your job that allows you to be a long term resident of Japan without paying taxes

[Dan333]

My understanding is that the contributions and the payout are tax free (invest in pre-tax income, realise gains at withdrawal time without tax burden) so even if you don't get both benefits, 1/2 the benefit is still worth it in my opinion

Hi. When you withdraw you are liable for tax on the full value of the fund.
All the money you invested and any gains. But you have a major allowance before tax is calculated..
Less than 20 years paying in. 40万 per yer.
21+ years. The allowance is 800万 + (70万 for each year over 20.)

Anything over your allowance is: divided by two (halved) then taxed at your marginal income tax rate. So basically added to whatever income you may have for that year. (You also have an option to take as a pension over several years rather than a lump sum.)

Let's say you manage to get a fund value 1,000万 over 15 years.
Your allowance is 15 * 40万 = 600万.
Amount over the allowance 400万. Halved = 200万
200万 is the income you would be taxed on.

Please note I could be completely wrong..
Please please note. Those allowances are shared with whatever retirement allowance your employer may be providing. 退職金.

This is very interesting thank you. Seems I will have to do more research to weigh it up.

[beanhead]

More importantly, I want to know what it is about your job that allows you to be a long term resident of Japan without paying taxes

Yep. This. Are they hiring?

[TokyoWart]

More importantly, I want to know what it is about your job that allows you to be a long term resident of Japan without paying taxes

I am not sure but I think this is still the case for those working under the SOFA which applies to both military and many civillian contractors:
" Members of the United States armed forces, the civilian component, and their dependents shall not be liable to pay any Japanese taxes to the Government of Japan or to any other taxing agency in Japan on income received as a result of their service with or employment by the United States armed forces, or by the organizations provided for in Article XV. The provisions of this Article do not exempt such persons from payment of Japanese taxes on income derived from Japanese sources, nor do they exempt United States citizens who for United States income tax purposes claim Japanese residence from payment of Japanese taxes on income."

https://ryukyu-okinawa.net/pages/archive/sofa.html

[adamu]

Even in that case I assume you will still have to pay US taxes.

"Due to my job I do not pay income tax or residence tax". Maybe this refers only to Japanese taxes, but it's not explicit.

[TokyoWart]

Even in that case I assume you will still have to pay US taxes.

"Due to my job I do not pay income tax or residence tax". Maybe this refers only to Japanese taxes, but it's not explicit.

Yes, I agree. I read the OP as only mentioning Japanese taxes. Interestingly, "combat pay" (pay received while in a combat zone) is exempt even from US income taxes but I think it's a bit of a stretch that this would apply to someone in Japan.