IDECO: "Switching" vs Contribution Allocation ratio

[ToushiTime]

Hi,

On SBI Benefit's IDECO website, I confused the Switching スイッチング(預け替え) function with the Contribution Allocation ratio 掛金の配分割合 setting.

I wanted to switch future allocations from one fund to another fund, so I should have used the Contribution Allocation ratio 掛金の配分割合.

However, I used the "Switching" function instead, which just replaces something I have already bought with another investment, and has no effect on future purchases.

In another thread on this forum, I was told that you cannot replace investments in a NISA (meaning, I think, your NISA tax-exempt limit for a given year would fall by the value of the NISA investment sold in that year).

Does that rule not apply to IDECO?

[Tkydon]

Hi,

On SBI Benefit's IDECO website, I confused the Switching スイッチング(預け替え) function with the Contribution Allocation ratio 掛金の配分割合 setting.

I wanted to switch future allocations from one fund to another fund, so I should have used the Contribution Allocation ratio 掛金の配分割合.

However, I used the "Switching" function instead, which just replaces something I have already bought with another investment, and has no effect on future purchases.

In another thread on this forum, I was told that you cannot replace investments in a NISA (meaning, I think, your NISA tax-exempt limit for a given year would fall by the value of the NISA investment sold in that year).

Does that rule not apply to IDECO?

The Contribution Allocation ratio 掛金の配分割合 setting tells your iDECO (or NISA) provider how you want to allocate Future Contributions each month;
10% of the contribution total amount to Fund A, 20% to Fund B and so on.
They will purchase however many units can be bought for the cash value of x% of that period's contribution.
This is set for all future contributions until you change it again.


The Switching スイッチング(預け替え) function in iDECO allows you to move funds that you have already accumulated from Fund A to Fund B by selling some or all of the units of Fund A and purchasing the same cash value of Units of Fund B.
Switching can be done Tax Free in the iDECO.


As for NISA, you can allocate funds to Investments only once. Once you have bought Units of your selected instrument, say Fund A, then when you decide to sell Fund A, the gain will be completely Tax Free, but you cannot reallocate those funds to another Tax Free Instrument, unless you roll over the funds and use available NISA Allowance for the current or future years...
So, better to not cash out units within NISA until you need the cash...

[adamu]

Does that rule not apply to IDECO?

Correct. iDeCo is more like an account in the intuitive sense. All the money goes into a pot and you can move it around as much as you like, keeping the tax savings (dividends and capital gains) until you actually withdraw in retirement.

meaning, I think, your NISA tax-exempt limit for a given year would fall by the value of the NISA investment sold in that year

This is not accurate. You tax exempt limit remains constant. You get closer to the limit with each purchase. Selling does not affect the limit (but you don't get it back, either - however you can keep any capital gains from the sale tax free).

[ToushiTime]

Your tax exempt limit remains constant. You get closer to the limit with each purchase. Selling does not affect the limit (but you don't get it back, either - however you can keep any capital gains from the sale tax free).

Thanks for clarifying that.