Regular NISA and Tsumitate NISA

[adamu]

To summarize: Tsumitate Nisa is ALWAYS better, no matter how much you invest ASSUMING: *huge list*

Cool, thanks for this, especially the counter-intuitive result.

Another way to think about it is that with the Tsumitate you can get an maximum of 8 million yen invested, but with regular NISA the maximum is 6 million. Although I'm not sure how much getting in early with the regular NISA and rolling over would counter that. It definitely feels better to put as much in as quickly as possible.

[Kalas]

(...) I'm not sure how much getting in early with the regular NISA and rolling over would counter that.

I have actually started to look at that (in case regular NISA is extended), but I haven't finished it yet. I didn't do it at first since regular NISA is only possible for another five years. If you start investing 2019 you won't be able to roll over the investment to a new Regular NISA in 2024.

What I can say is that if you invest long-term, then it is better to invest 400k in Tsumitate NISA +800k in stocks than to invest 1200K in Regular NISA and then switch to Tsumitate + Stock (when you can't open new Regular NISA anymore). The key point here is LONG-TERM, and that is 17-20 years. Any shorter and Regular NISA is better when investing 1200k JPY per year. With that in mind, I think (but have yet to confirm) that even if rollover can be used for Regular NISA, Tsumitate NISA is still better IF you know that you won't leave Japan within 17-20 years. If you leave Japan earlier, then Regular NISA could be better depending on how much you invest each year. I will check if this is correct.

*I have edited this post to make it easier to understand.*

[amangoyal1]

Hi again,


I more wanted to know why you set 500,000 yen a year as a limit for when the new Nisa is better than the old.

I now did my own calculation. I tried to attach the excel file for people to check themselves, but file format was not allowed. I can e-mail it to anyone who wants it.

To summarize: Tsumitate Nisa is ALWAYS better, no matter how much you invest ASSUMING:

• You start investment year 2019

• You invest the SAME AMOUNT EVERY year for TWENTY YEARS. (see bottom for other lengths)

• Money you can not invest in Tsumitate NISA, you invest in the stock market.

• You take out ALL money on the same day after 20 years.

• Average return rate is 5% per year before tax no matter investment form (Tsumitate NISA, Regular NISA and Stocks).

• You invest all the money at once in the beginning of the year.

• Tax on stock profit is 20.315%

• The regular NISA is not extended

Extra assumptions for Regular NISA:

• You switch to Tsumitate NISA when Regular NISA disappear

• All return from Regular Nisa is invested in stocks when the accounts has to be closed (5 years after opening)

Senario 1, You can invest 400'000 JPY /year
Senario 1a, you choose Tsumitate Nisa. Return is 13,887,701 JPY after 20 Years
Senario 1b, you choose Regular Nisa, and then Tsumitate Nisa after 5 years. Return is 13,426,115 JPY after 20 Years
Summary: Tsumitate Nisa is better

Senario 2, You can invest 415'000 JPY /year
Senario 2a, you choose only Tsumitate Nisa, (400'000 JPY /year) and spend the extra 15'000 JPY. Return: 13,887,701 JPY after 20 Years
Senario 2b, you choose Regular Nisa, (415'000 JPY /year). After 5 years you switch to Tsumitate (400'000 JPY/year) and Stocks (15'000 JPY/year). Return is 13,906,260 JPY after 20 Years
Senario 2c, you choose Tsumitate Nisa (400'000 JPY /year) and stocks (15'000 JPY /year). Return is 14'363'636
Summar: Tsumitate+Stock is best, Secound is Regular Nisa, and third is Only Tsumitate Nisa.

Senario 3, You can invest 1'200'000 JPY /year
Senario 3a, you choose only Tsumitate Nisa, (400'000 JPY /year) and spend the extra 800'000 JPY. Return: 13,887,701 JPY after 20 Years
Senario 3b, you choose Regular Nisa, (1'200'000 JPY /year). After 5 years you switch to Tsumitate (400'000 JPY /year) and Stocks (800'000 JPY /year). Return is 39'033'850 JPY after 20 Years
Senario 3c, you choose Tsumitate Nisa (400'000 JPY /year) and stocks (800'000 JPY /year). Return is 39'270'929
Summar: Tsumitate+Stock is best, Secound is Regular Nisa, and third is Only Tsumitate Nisa.


Extra comment, Regular Nisa is the best alternative until (and including):
year 2023 with any investment OVER 401'000 /year
year 2024 with investment of 450'000 JPY /year
year 2028 with investment of 800'000 JPY /year
year 2032 with max for maximum investment (1'200'000 JPY)

Can you please share the file on email with me ? My email is amangoyal1@gmail.com

[zeroshiki]

I think the scenario 3 has been proven to be wrong now (the post was written in 2018) since you can rollover regular NISA to a new regular NISA. There's also no requirement for you to liquidate your NISA holdings even after the 5 years are up. Even moving it to a specific account just bumps the acquisition amount to whatever the value was at the time you moved it from NISA to specific so you can still compound it. Someone correct me if I'm wrong.

[Kanto]

I think the scenario 3 has been proven to be wrong now (the post was written in 2018) since you can rollover regular NISA to a new regular NISA. There's also no requirement for you to liquidate your NISA holdings even after the 5 years are up. Even moving it to a specific account just bumps the acquisition amount to whatever the value was at the time you moved it from NISA to specific so you can still compound it. Someone correct me if I'm wrong.

From what I understand,

Yes, you can roll over from Old NISA→NEW. https://media.rakuten-sec.net/articles/-/25443?page=4

Generally, if you can contribute a lump sum amount in January to a Regular/New Nisa it is probably better.

However, if you cannot but can contribute a lump sum amount to a Tsumitate (via the bonus function) and contribe the rest gradually in your taxable account, Tsumitate may be a better option.

[zeroshiki]

I think the scenario 3 has been proven to be wrong now (the post was written in 2018) since you can rollover regular NISA to a new regular NISA. There's also no requirement for you to liquidate your NISA holdings even after the 5 years are up. Even moving it to a specific account just bumps the acquisition amount to whatever the value was at the time you moved it from NISA to specific so you can still compound it. Someone correct me if I'm wrong.

From what I understand,

Yes, you can roll over from Old NISA→NEW. https://media.rakuten-sec.net/articles/-/25443?page=4

Generally, if you can contribute a lump sum amount in January to a Regular/New Nisa it is probably better.

However, if you cannot but can contribute a lump sum amount to a Tsumitate (via the bonus function) and contribe the rest gradually in your taxable account, Tsumitate may be a better option.

I just did some VERY basic math and compared NISA vs T-NISA

(Note: this is a comparison only for 1 year of NISA/T-NISA expanded out to 20 years. This assume you put the money in January 1 of the new NISA year)

NISA: 1.2M invested, 5 years tax free, next 15 years with tax, compunded 5% annually = ¥2,847,524.66
T-NISA 1.2M invested broken up as 400k T-NISA and 800k normal account, full 20 years = ¥1,061,319.08 tax free + ¥1,324,526.72 (after tax) = ¥2,385,845.80

In this case, just regular NISA wins because of the compounding interest on the large initial amount. This doesn't even take into consideration the extra 5 years you get from rolling over regular NISA which would make it win even more in this comparison.

[Kanto]

In this case, just regular NISA wins because of the compounding interest on the large initial amount. This doesn't even take into consideration the extra 5 years you get from rolling over regular NISA which would make it win even more in this comparison.

Yep, I totally agree. However, most investors will not have 120万, ready to invest every January for five years straight.

This makes lumpsum Tsumitate in January + the rest in a taxable account gradually, as the best option for most.

[zeroshiki]

I actually did a recalculation. NISA beats T-NISA with a rollover but T-NISA beats out NISA in pretty much all cases otherwise.

In this, I break down the money you'd have after 5 years, 10 years and then 20 years with the corresponding calculation.
With rollover


Without rollover


I'm actually surprised at the result. Looking at it from a 20 year period, the best strategy is to do T-NISA and then supplement it with a specific account with the money you were supposed to put into NISA anyways. The rollover is great strategy for maximizing tax advantage for the NISA 5 years ago, but it wipes out your NISA allowance for the year which puts you at an even bigger disadvantage tax-wise.

Regular Nisa only becomes advantageous in shorter periods. So I guess there's an equilibrium point Age N where it makes sense to start regular NISA instead of tsumitate NISA. But if you have 20 years of runway ahead of you, T-NISA seems to be the way to go.

[RetireJapan]

After using ordinary NISA since we started, my wife and I are planning to switch to tsumitate next year.

[Butterball]

NISA: 1.2M invested, 5 years tax free, next 15 years with tax, compunded 5% annually = ¥2,847,524.66
T-NISA 1.2M invested broken up as 400k T-NISA and 800k normal account, full 20 years = ¥1,061,319.08 tax free + ¥1,324,526.72 (after tax) = ¥2,385,845.80

In this case, just regular NISA wins because of the compounding interest on the large initial amount. This doesn't even take into consideration the extra 5 years you get from rolling over regular NISA which would make it win even more in this comparison.

You mention the rollover, but it might be more powerful than just an extra 5 years. Ben or someone who knows better might correct me here, but I don't think there has been any indication that rollovers will be limited to once time only (extra five years). I think the general expectation is that NISA accounts will probably be allowed to be rolled over until further notice, or until regular NISA is discontinued, in which case regular NISA will likely be allowed to be rolled over into T-NISA. No guarantees, but I think it's likely that current NISA accounts will end up giving more than 5 or even 10 years tax shelter. Somebody let me know if this is just wishful thinking!