How will the re-investment work?

[Roger Van Zant]

Example 1 - Classic Regular Nisa -> 1,2000,000 year. Lifetime total Contribution Limit - > 6,000,000.

A. If your Nisa account had 6,000,000 yen total, (5 years' worth of investment) And you sold 3,000,000 yen. That is it. No more space for you. You "used it up".

The only possible way your Nisa can grow now is through your investment increasing in value. No more contributions.

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Example 2 - New Nisa -> 3,6000,000 year. Lifetime total Contribution Limit - > 18,000,000.

B. You have 18,000,000 yen. A full Regular Nisa. You sell 5,000,000 yen to put a downpayment on a house in 2030.

In 2031 you can put 3,600,000* yen into your account
In 2032 you can put 1,800,000 yen into your account

Okay, I get the 3,600,000 yen amount.
How do you arrive at the 1,800,000? Shouldn't that be 1,400,000 (5,000,000 - 3,600,000)?

Should be 1800万 or 18,000,000 円。

"In 2032 you can put 18,000,000 into the account"?

[adamu]

One thing I am confused by is when people say : "You can sell and reinvest in the 新NISA as long as you don't go over the annual limit".
But this has always been the case, no?

With my つみたてNISA, the annual limit has always been 400,000 yen.

I could use up 100,000 yen's worth, sell it, and still have 300,000 yen left to use.
So selling and reinvesting is not an issue, as long as I don't max out the 400,000 yen limit.

What are people talking about with regard to the 新NISA? What's the difference?

For the lifetime allowance, it's a lifetime, not an annual limit, and it's 18M yen by definition. In your example, even if you had maxed out your 18M allowance (thus cannot make any more NISA investments until your next life), you'd get back the 100,000 yen allowance to re-invest next year.

1. put in 100000 (contributed 100000 / (18M-100k) remains)
2. it grows to 150000 (contributed 100000 / (18M-100k) remains)
3. take out 50000 (contributed 100000 / (18M-100k) remains)
4. wait a year (contributed how much? 50000? 66667? 100000? / (18M-???) remains)

The real answer is that we don't have the details yet.

To speculate, my guess is it will be first in, first out. When you sell, they will calculate the number of units you sold (not the price), and you will get back the allowance that the oldest units you have in your account cost you.

In your example at step 3, it depends how many units you needed to sell to get 50,000. Since it's a third of your 150k balance, you'd be selling the equivalent of 1/3 of your original 100k investment, so you'd get 100k/3 allowance back next year. As explained above by sutebayashi.

50,000/150,000 is a third, so for your basic case I think you’d have freed up 33,333 yen.

So your lifetime allowance at step 4 would be 18M - 66,667. But this is just speculation, I've not seen the actual method explained from an official source yet.

[sutebayashi]

All the NISA providers must be busy implementing and testing their systems to be ready for next year, so the details should be defined at least, but perhaps not publicized. The NISA providers presumably have channels by which they can pose questions to the FSA to make sure they are implementing correctly.

I went googling and there is mention of the 簿価残高方式 by which the nisa allocation limit will be managed. Perhaps some more rigorous googling could turn up a more detailed specification or examples, besides the basic one that we have talked of here, but I suspect it is a general question of “how does it work when you sell a toshin balance, or a stock position that was accumulated in more than one purchase”?

Actually this article from last month has a mention of 簿価残高方式:
https://money-bu-jpx.com/news/article045942/
But I mention it more as an aside - a couple of notable points I see in there:
- the official name of “atarashii Nisa” is decided, and it is just “Nisa”. They are calling it atarashii, until 2024 comes.
- the FSA person says he hopes to be able to do something with Nisa to encourage youngsters to get investing sooner, as there is a gap between Japan and overseas. So Junior Nisa is gone for now, but maybe something will come back in future… (not sure they have to make it tax free to be worthwhile, but sure I will take more tax free if they will offer it)

[Roger Van Zant]

@sutebayashi wrote:
For the lifetime allowance, it's a lifetime, not an annual limit, and it's 18M yen by definition. In your example, even if you had maxed out your 18M allowance (thus cannot make any more NISA investments until your next life), you'd get back the 100,000 yen allowance to re-invest next year.

I just cannot get my head around this.
How is the 18m a "lifetime allowance"?
All you need to do to free up some space is sell a chunk, then you can invest more once again. See my above post.
You could easily invest way more than 18m by your 6th, 7th, 8th year....

[adamu]

@sutebayashi wrote:
For the lifetime allowance, it's a lifetime, not an annual limit, and it's 18M yen by definition. In your example, even if you had maxed out your 18M allowance (thus cannot make any more NISA investments until your next life), you'd get back the 100,000 yen allowance to re-invest next year.

I just cannot get my head around this.
How is the 18m a "lifetime allowance"?
All you need to do to free up some space is sell a chunk, then you can invest more once again. See my above post.
You could easily invest way more than 18m by your 6th, 7th, 8th year....

Not @sutebayashi, me

The maximum you can invest in your life is 18M. Once you invest that, you can not invest more unless you sell something. If you sell something, you can re-invest the original purchase value of what you sold next year.

Another way to look at it: you can buy 18M of stuff, and then you can play about with it switching funds, but you can't go over 18M of money in.

If you had your full 18M in a bank account, once you invested it all, the bank account is zero. If you sell an investment, some money goes back into the bank account, which you can use again. But it's not new money, it's just part of your original 18M.

Crucially, if you invested 10k and it grew to 20k and you sold and got 20k, only the original 10k would go into the bank account for reinvestment. The other 10k would be a tax-free gain but you can't invest it without using more lifetime allowance.

[goran]

.....
The lifetime contribution can easily go above 18,000,000 yen though....

For example:

2024 contribute 3.6m
2025 contribute 3.6m
2026 contribute 3.6m
2027 contribute 3.6m
2028 contribute 3.6m
....total contributed is now 18m

2029 sell 2m
2030 contribute 2m (the 2m you sold in 2029 has "freed up" 2m for you in 2030)
2031 sell 1.5m
2032 contribute 1.5m (the 1.5m you sold in 2031 has "freed up" 1.5m for you in 2032)
....total contributed is now 18m (2024~2028) + 2m + 1.5m = 21.5m.

You just have to sell a chunk in order to be able to pay more in the next year?

As adamu said in his post, I don't think this is how it works.

Once you sell the 2m in 2029, the entire 2m is not freed up for 2030. Only the purchased value will free up for you in 2030.
Let's say your asset doubled from 2024 to 2029. So, whatever you purchased with 1m in 2024 has become 2m in 2029, which you sell.
If this is the case, then only 1m (your original purchase amount) will be freed up for you to re-invest in 2030, not the entire 2m (the selling price with tax-free gains). This way the the total contributed amount will stay within 18m.

Again, I don't know all the details, but this is my understanding from the available information at this moment.

[Tkydon]

The Lifetime Contribution Limit works like this:

Year 1 - Say you put Y1.2M in Growth Portion and 1.2M in Tsumitate Portion
You still have Y1.2M possible allocation in that year, which you loose at the end of the year.
You have used up a total of Y2.4M of the Y18M Lifetime Contribution Allowance, leaving Y15.6M for future years.

Year 2 - Say you put Y1.2M in Growth Portion and 1.2M in Tsumitate Portion
You still have Y1.2M possible allocation in that year, which you loose at the end of the year.
You have used up a total of Y4.8M of the Y18M Lifetime Contribution Allowance, leaving Y13.2M for future years

Year 3 - Say you put Y1.2M in Growth Portion and 1.2M in Tsumitate Portion
You still have Y1.2M possible allocation in that year, which you loose at the end of the year.
You have used up a total of Y7.2M of the Y18M Lifetime Contribution Allowance, leaving Y10.8M for future years.

and so on...

Now if the things you bought in Year 1 went up 100% and you sold them in Year 4...
You would receive Y4.8M Tax Free.
This would liberate the first year's Contribution Allowance of Y2.4M of the Allowance that you paid in (not 4.8M of the withdrawal) of the Y18M Lifetime Contribution Allowance, so your available lifetime limit will go back up to Y13.2M for future years...

In year 4 and subsequent years, you have the same Annual Limit; Y2.4M Growth Portion and Y1.2M Tsumitate Portion, until you have reached the Y18M Lifetime Contribution Limit.

When you reach the Y18M Lifetime Contribution Limit, you will not be able to invest any more in NISA until you sell something, liberating that Contribution Allowance that was used when those particular assets were purchased, which would allow you to invest that same amount of the input (not the withdrawal) again.

[Roger Van Zant]

@sutebayashi wrote:
For the lifetime allowance, it's a lifetime, not an annual limit, and it's 18M yen by definition. In your example, even if you had maxed out your 18M allowance (thus cannot make any more NISA investments until your next life), you'd get back the 100,000 yen allowance to re-invest next year.

I just cannot get my head around this.
How is the 18m a "lifetime allowance"?
All you need to do to free up some space is sell a chunk, then you can invest more once again. See my above post.
You could easily invest way more than 18m by your 6th, 7th, 8th year....

Not @sutebayashi, me

The maximum you can invest in your life is 18M. Once you invest that, you can not invest more unless you sell something. If you sell something, you can re-invest the original purchase value of what you sold next year.

Another way to look at it: you can buy 18M of stuff, and then you can play about with it switching funds, but you can't go over 18M of money in.

If you had your full 18M in a bank account, once you invested it all, the bank account is zero. If you sell an investment, some money goes back into the bank account, which you can use again. But it's not new money, it's just part of your original 18M.

Crucially, if you invested 10k and it grew to 20k and you sold and got 20k, only the original 10k would go into the bank account for reinvestment. The other 10k would be a tax-free gain but you can't invest it without using more lifetime allowance.

Ah, this explanation makes sense. Thank you!
Sorry for mistaking you with @sutebayashi.

[Roger Van Zant]

.....
The lifetime contribution can easily go above 18,000,000 yen though....

For example:

2024 contribute 3.6m
2025 contribute 3.6m
2026 contribute 3.6m
2027 contribute 3.6m
2028 contribute 3.6m
....total contributed is now 18m

2029 sell 2m
2030 contribute 2m (the 2m you sold in 2029 has "freed up" 2m for you in 2030)
2031 sell 1.5m
2032 contribute 1.5m (the 1.5m you sold in 2031 has "freed up" 1.5m for you in 2032)
....total contributed is now 18m (2024~2028) + 2m + 1.5m = 21.5m.

You just have to sell a chunk in order to be able to pay more in the next year?

As adamu said in his post, I don't think this is how it works.

Once you sell the 2m in 2029, the entire 2m is not freed up for 2030. Only the purchased value will free up for you in 2030.
Let's say your asset doubled from 2024 to 2029. So, whatever you purchased with 1m in 2024 has become 2m in 2029, which you sell.
If this is the case, then only 1m (your original purchase amount) will be freed up for you to re-invest in 2030, not the entire 2m (the selling price with tax-free gains). This way the the total contributed amount will stay within 18m.

Again, I don't know all the details, but this is my understanding from the available information at this moment.

I think I understand it better now. Thank you!

[Roger Van Zant]

The Lifetime Contribution Limit works like this:

Year 1 - Say you put Y1.2M in Growth Portion and 1.2M in Tsumitate Portion
You still have Y1.2M possible allocation in that year, which you loose at the end of the year.
You have used up a total of Y2.4M of the Y18M Lifetime Contribution Allowance, leaving Y15.6M for future years.

Year 2 - Say you put Y1.2M in Growth Portion and 1.2M in Tsumitate Portion
You still have Y1.2M possible allocation in that year, which you loose at the end of the year.
You have used up a total of Y4.8M of the Y18M Lifetime Contribution Allowance, leaving Y13.2M for future years

Year 3 - Say you put Y1.2M in Growth Portion and 1.2M in Tsumitate Portion
You still have Y1.2M possible allocation in that year, which you loose at the end of the year.
You have used up a total of Y7.2M of the Y18M Lifetime Contribution Allowance, leaving Y10.8M for future years.

and so on...

Now if the things you bought in Year 1 went up 100% and you sold them in Year 4...
You would receive Y4.8M Tax Free.
This would liberate the first year's Contribution Allowance of Y2.4M of the Allowance that you paid in (not 4.8M of the withdrawal) of the Y18M Lifetime Contribution Allowance, so your available lifetime limit will go back up to Y13.2M for future years...

In year 4 and subsequent years, you have the same Annual Limit; Y2.4M Growth Portion and Y1.2M Tsumitate Portion, until you have reached the Y18M Lifetime Contribution Limit.

When you reach the Y18M Lifetime Contribution Limit, you will not be able to invest any more in NISA until you sell something, liberating that Contribution Allowance that was used when those particular assets were purchased, which would allow you to invest that same amount of the input (not the withdrawal) again.

Thank you for the explanation.
This makes sense to me now.