New iDeCo law from May 2022 and question

[RetireJapan]

One thing to consider is the potential tax liability: iDeCo is a great option, but it is not entirely tax free in all situations.

If you are paying in the maximum 68,000 yen a month it is quite possible/likely that you will exceed the tax-free allowance for iDeCo (the retirement bonus allowance).

Something to keep in mind when running calculations perhaps.

[banders]

Do you have a link to info (in English preferably) on that allowance?

[RetireJapan]

Do you have a link to info (in English preferably) on that allowance?

p.33 and on in this: https://www.nta.go.jp/publication/pamph ... pdf/16.pdf

Basically you build up a tax-free allowance (400,000 yen x first 20 years)+(700,000 yen x next ten years) that tops out at 15m after 30 years. If your retirement bonus (or iDeCo account) is more than this, half of the excess is taxed as ordinary income.

Of course, you get to decide when to take iDeCo, so doing it in a year where you don't have other income would be smart.

[EmaxisSlim Cultist]

Do you have a link to info (in English preferably) on that allowance?

p.33 and on in this: https://www.nta.go.jp/publication/pamph ... pdf/16.pdf

Basically you build up a tax-free allowance (400,000 yen x first 20 years)+(700,000 yen x next ten years) that tops out at 15m after 30 years. If your retirement bonus (or iDeCo account) is more than this, half of the excess is taxed as ordinary income.

Of course, you get to decide when to take iDeCo, so doing it in a year where you don't have other income would be smart.

Is this any reason not to continue contributing if you go over the 15 million?

It seems better than contributing to your taxable account.

[RetireJapan]

Is this any reason not to continue contributing if you go over the 15 million?

It seems better than contributing to your taxable account.

I'm not sure. I imagine it depends. Also, most people are not going to get beyond the first 20 years of contributions, which means they will get a much lower tax-free allowance. They may have a retirement bonus from their job or the SME savings scheme, which could mean their entire iDeCo would be taxable.

iDeCo is less flexible than a taxable account in terms of how much and how you sell, as well as the chance to use losses to offset capital gains etc.

I'm sure a lot of the time paying into iDeCo makes the most sense (particularly if you are have a high marginal tax rate when you pay in).

It's just something to be aware of