Switching from tsumitate NISA and if it's worth it

[Viralriver]

Hi all, I'm currently on a tsumitate NISA plan and after a convo with a friend today have realised it might be better to switch over to a standard NISA. I'm unsure of the benefits, so was hoping for some advice here and your thoughts (plus how to even start the process itself).

Some standard stuff:

• I have every intention of staying in Japan long term.
• I am only interested in investing in 投資信託 within my NISA.
• I am a UK citizen.
• My tsumitate NISA was started in 2020 December.
  • In 2020 I invested 398,900 JPY (the max I could given I started in December).
  • In 2021 I have invested 280,000 JPY so far (but this will increase to 400,000 JPY by the end of the year).
  • In total, I am on my 2nd year and have no problem making the max payment.
• My plan is to invest ~400,000 JPY monthly into 投資信託 (hence me thinking the standard NISA may be better).

With this in mind, I started the tsumitate NISA as I liked the idea of 20 years and a slightly higher total initial investment cap (8m > 6m). But I've heard that the standard NISA is no longer strictly 5 years and it can be extended in 2023 for an additional 5 years.

My questions are:

• How many years is the standard NISA?
• On the surface are there any problems with switching from tsumitate to the standard NISA?
• Given how much I have already invested, does this change my yearly limit at all if I switch?
• Can I switch back to the tsumitate after the standard NISA ends?
• What is the process (Rakuten)?

Thank you! I appreciate this is a lot of questions, so even just some anecdotes or links to resources would be great.

[zeroshiki]

You should check the entries on NISA here on retirejapan or on the retirewiki for more details but NISA is per year. What this means is that you might be Tsumitate NISA for 2021 but that doesn't mean you can't switch to standard NISA for 2022. Anything you do for 2022 has no bearing on your 2021 account. This means your funds in Tsumitate NISA for 2021 will still be there and will be unaffected.
Standard NISA is only 5 years tax free but you can roll over to a new year when your 5 years are up (thus using up that year's NISA allowance).

1. 5 years
2. Nopes
3. Its per year so no
4. You can switch every year. But I think there's a misunderstanding here. Your funds bought in 2021 will be tax free for 20 years. This won't change unless you sell them. Choosing Standard NISA for 2022 won't affect your funds bought in 2021.
5. I think Rakuten asks you at the end of the year what you want to do in 2022 (someone can probably answer this better than what I did)

[beanhead]

[*]My plan is to invest ~400,000 JPY monthly into 投資信託 (hence me thinking the standard NISA may be better).

If you can invest this much, my suggestion is, for 2022 you switch to the regular NISA.
In Jan 2022, put the full yearly amount in, 1.2M JPY.
Then make your regular investments each month in your taxable/tokutei account

If you can invest 5M yen a year and would be worried or concerned if this drops 50% at any time, I suggest investing a portion each month/year into a bond fund as well. This is a personal choice, and depends on your age and appetite for risk.

[adamu]

was hoping for some advice here and your thoughts

If you have the money and are willing to mess about / optimise, my understanding is that the best strategy for you is:

1. Max out Regular NISA for 2022 & 2023. 2023 is the last year for investing funds in a regular NISA.
2. Max out New NISA for 2024-2026
3. Roll over funds from step one into New NISA for 2027 & 2028, top up if you still have allowance. 2028 is the last year for investing funds in a New NISA.
4. 2029-2033 roll over what you can from New NISA to Tsumitate NISA. Top up as necessary.
5. 2034-2042 Tsumitate NISA
6. 2043~ nobody knows what the system will be yet.

But the simplest long-term set-it-and-forget strategy is Tsumitate NISA every year + invest extra in taxable account.

[RetireJapan]

But the simplest long-term set-it-and-forget strategy is Tsumitate NISA every year + invest extra in taxable account.

That's what I'll be doing from next year

[bryanc]

what do you recommend to invest in for the taxable acct??

[Viralriver]

Thank you everyone for the replies. It seems like switching is probably the best choice here.

was hoping for some advice here and your thoughts

If you have the money and are willing to mess about / optimise, my understanding is that the best strategy for you is:

1. Max out Regular NISA for 2022 & 2023. 2023 is the last year for investing funds in a regular NISA.
2. Max out New NISA for 2024-2026
3. Roll over funds from step one into New NISA for 2027 & 2028, top up if you still have allowance. 2028 is the last year for investing funds in a New NISA.
4. 2029-2033 roll over what you can from New NISA to Tsumitate NISA. Top up as necessary.
5. 2034-2042 Tsumitate NISA
6. 2043~ nobody knows what the system will be yet.

But the simplest long-term set-it-and-forget strategy is Tsumitate NISA every year + invest extra in taxable account.

Thanks for this detailed response. Could you explain the rollover concept? Why in step 3 would I not want to just invest in 1.22m JPY worth of securities rather than 'rolling over' what I had in 2022-23? Also does this mean I need to 'rollover' my tsumitate products into the 一般NISA next year?

Maybe it's my fundamental understanding which is lacking.

2020 (starting year): Invest in 400k in tsumitate. In 2040 this gets moved to my taxable account with a 'purchase' price of the value in 2040, not 2020.
2021: Same as above, but moved to taxable account in 2041.
2022 (switch to 一般NISA): Invest in 1.2m worth of securities. Moved to taxable account in 2027.
2023: Same as above, but moved to taxable account in 2028.
2024 (switch to 新NISA): Invest in 1.22m worth of securities. Moved to taxable account in 2029.
2025: Same as above, moved in 2030.
2026: Same as above, moved in 2031.
2027: My understanding from your implication is that I'm allowed 6.1m JPY (1.22m*5) in total for my non tsumitate-NISA. So if the current price of all securities bought in my 一般NISA and 新NISA is less than this, I can top up by up to 1.22m this year.
2028: Same as above if still less than 6.1m JPY.
2029 (switch back to tsumitate): I can no longer use the standard NISA, so back to tsumitate.

If this is correct then I think I understand in essence, but not necessarily on the concept of rollovers, and when they are necessary (since I thought we treat each year as conceptually separate accounts). I didn't do any rollover at the end of 2020, so wondering if I possibly messed something up here.

what do you recommend to invest in for the taxable acct??

I won't recommend anything, but I generally keep all my investments in the emaxis slim 投資信託. A lot of my cash goes to the All Country fund, and then some splattered over S&P500 and developing countries.

[zeroshiki]

Thank you everyone for the replies. It seems like switching is probably the best choice here.

was hoping for some advice here and your thoughts

If you have the money and are willing to mess about / optimise, my understanding is that the best strategy for you is:

1. Max out Regular NISA for 2022 & 2023. 2023 is the last year for investing funds in a regular NISA.
2. Max out New NISA for 2024-2026
3. Roll over funds from step one into New NISA for 2027 & 2028, top up if you still have allowance. 2028 is the last year for investing funds in a New NISA.
4. 2029-2033 roll over what you can from New NISA to Tsumitate NISA. Top up as necessary.
5. 2034-2042 Tsumitate NISA
6. 2043~ nobody knows what the system will be yet.

But the simplest long-term set-it-and-forget strategy is Tsumitate NISA every year + invest extra in taxable account.

Thanks for this detailed response. Could you explain the rollover concept? Why in step 3 would I not want to just invest in 1.22m JPY worth of securities rather than 'rolling over' what I had in 2022-23? Also does this mean I need to 'rollover' my tsumitate products into the 一般NISA next year?

Maybe it's my fundamental understanding which is lacking.

2020 (starting year): Invest in 400k in tsumitate. In 2040 this gets moved to my taxable account with a 'purchase' price of the value in 2040, not 2020.
2021: Same as above, but moved to taxable account in 2041.
2022 (switch to 一般NISA): Invest in 1.2m worth of securities. Moved to taxable account in 2027.
2023: Same as above, but moved to taxable account in 2028.
2024 (switch to 新NISA): Invest in 1.22m worth of securities. Moved to taxable account in 2029.
2025: Same as above, moved in 2030.
2026: Same as above, moved in 2031.
2027: My understanding from your implication is that I'm allowed 6.1m JPY (1.22m*5) in total for my non tsumitate-NISA. So if the current price of all securities bought in my 一般NISA and 新NISA is less than this, I can top up by up to 1.22m this year.
2028: Same as above if still less than 6.1m JPY.
2029 (switch back to tsumitate): I can no longer use the standard NISA, so back to tsumitate.

If this is correct then I think I understand in essence, but not necessarily on the concept of rollovers, and when they are necessary (since I thought we treat each year as conceptually separate accounts). I didn't do any rollover at the end of 2020, so wondering if I possibly messed something up here.

what do you recommend to invest in for the taxable acct??

I won't recommend anything, but I generally keep all my investments in the emaxis slim 投資信託. A lot of my cash goes to the All Country fund, and then some splattered over S&P500 and developing countries.

You only do a rollover if your NISA is expired (so in 2020, the 2014 NISA would have expired and they'd ask you to do a rollover if you want).
If you had 50,000 in a fund in 2014 whose value is 75,000 in 2020, doing a rollover is advantageous because the NISA hit on those funds is 50,000 instead of 75,000. This means your NISA allocation for 2020 can have more than 1.2M since you rolledover funds from 2014 (RJ or other people with more experience, please correct me if I'm wrong)

[adamu]

Could you explain the rollover concept?

I could, but I already wrote it on the wiki, so I'll just link you there https://retirewiki.jp/wiki/NISA#Rollove ... ear_period

The quick version is that funds in a NISA are only tax-free for 5 years.
Rolling over allows you to roll over the full amount for another 5 years, which has two benefits: it allows you to defer capital gains, and if the balance is greater than the following years allowance, you can still roll over the full amount - so better than investing new cash.

[Viralriver]

Could you explain the rollover concept?

I could, but I already wrote it on the wiki, so I'll just link you there https://retirewiki.jp/wiki/NISA#Rollove ... ear_period

The quick version is that funds in a NISA are only tax-free for 5 years.
Rolling over allows you to roll over the full amount for another 5 years, which has two benefits: it allows you to defer capital gains, and if the balance is greater than the following years allowance, you can still roll over the full amount - so better than investing new cash.

Thanks for the explanation and link (and @zeroshiki - doesn't seem like I can multiquote in a single reply). This explains it for me, and looks like I don't need to worry about it just now anyway which is nice to know.

So looks my schedule would be:

2020-2021 - tsumitate - 400k x 2 = 800k
2022-2023 - 一般NISA - 1.2m x 2 = 2.4m (only stopping here since the service ends in 2023)
2024-2026 - 新NISA - 1.22m x 3 = 3.66m
2027 - You suggested rolling over 2022 NISA into this, but I assume it's also possible to have another year of 1.2m if I wanted to?
2028 - Same as above but for 2023 NISA
2029 - I have now used up 5 years of the new NISA, and the old NISA has gone so I resort to tsumitate. Can either choose to invest 1.2m in new assets or roll over eligible from my 2024 new NISA
2030 - Same as above, but from 2025 new NISA
2031 - Same as above but from 2026 new NISA
2032 - Can I continue to roll-over after another 5 years has ended? If not, tsumitate
2032-2039 - Same as above (tsumitate)
2040 - This is the first year I would be eligible for rolling over, from my 2020 tsumitate
2041 - Roll over from 2021 tsumitate or new 1.2m purchase
2042 - Continue rolling over from the tsumitate payments in 2031?
2043+ who knows.

Does this look somewhat correct?

It seems through this that on my schedule I am 'allowed' 2 years of the current NISA, a possible 5 years of the new NISA, and (with the assumption that the tsumitate gets continued indefinitely), 20 years of that. Is that correct? Or is there a total cap for switching between the standard and tsumitate NISA?

Apologies if my questions are confusing.. ^^'