Silly American with Lots of Questions

[Kona]

Hello there all! New to this whole retirement investing thing and with the added complication of being an American(?) I'm quite confused on the iDeCo front.

I turn 27 this year and will also be hitting my 10th year in Japan. Finally earning enough to start thinking about saving and was looking into opening a Roth IRA but found out about the the issues with that thanks to the website. Ideally I'd like to open iDeCo started up this year (want me that tax break) and start earning some of that sweet sweet compound interest, but I don't understand what stocks I'm supposed to avoid as an American.
Call me stock dumb if you will. I finally figured out the difference between stocks and bonds this month. I saw someone say something about only investing in something that pays cash? But then I also saw something about not investing in domestic business? All in all, just very confused. What stocks do Americans need to avoid?

Extra bonus question: Should I stick to maxing out iDeCo (I can do the 6man one) or do both iDeCo and NISA and just not put so much into the iDeCo?

Thank you all for the time and any and all assistance is appreciated!
-A very confused American

[RetireJapan]

Hi Kona

Welcome to the forum! The US rules and regulations are extremly opaque, so don't worry about not understanding them.

As far as I know, you should avoid non-US mutual funds and ETFs. In Japan, most brokers won't sell you US stocks.

So that leaves you with single Japanese stocks.

This means you can't use iDeCo to invest (only the cash savings option). If you were in your 50s, it might make sense to do this, as the tax savings probably outweigh the depreciation due to inflation. At your age, I probably wouldn't bother.

In practice, we tend to recommend US citizens invest in the US using an existing account or Interactive Brokers (or give up their US passport, but that is for very committed lifers).

[Kona]

Thank you very much for the valuable information!

Would you happen to know if I still get the tax break for still just a cash savings? It's mainly the tax break that really draws me to iDeCo since I earn in the 20% range of income tax.
Would the rules be the same for investing with NISA as well?

I was looking into buying one of the books but was unsure of which one to buy because I was stuck between iDeCo and NISA, so thank you very much for clearing up that part of it!

[RetireJapan]

You can get the tax break on iDeCo BUT then have to leave your funds in cash for 33 years. There is a reasonable risk that they would underperform investments in taxable accounts.

You can use NISA, but probably only to buy individual Japanese stocks (and the US will not treat this as tax-advantaged). So at the end of the day investing in the US is probably the best/easiest option.

[TokyoWart]

I would second RetireJapan's recommendation to just invest in the US through taxable accounts. Just to clarify what is "difficult" vs "impossible" in the comments above:

1. You can fund an IRA if you have income left over after subtracting your Foreign Earned Income Exclusion and even make it a backdoor Roth in many cases but this requires that higher income.

2. You can buy non-US mutual funds but since in most cases they will be considered Passive Foreign Investment Companies (PFIC) you will have to file form 8621 with your US taxes. I've never met anyone willing to complete that form.
https://www.pwc.com/gx/en/services/peop ... ptions.pdf

Because you're accumulating some funds and are a US citizen, don't forget to file your FBAR if your total Japanese investment/banking accounts passed $10,000 at any time this year. The form is very easy to complete but penalties for failing to submit it are extreme.