Retirement bonus/pension tax on iDeCo

[Moneymatters]

Thanks!

So only years during which you contribute will build a tax-free allowance. That actually makes sense.
I'm guessing that even if you invest less than 40万 within a year you'll still get the 40万 allowance. (For each of the first 20 years.)

The tax-free allowance seems to be the same regardless of the level of your contributions.

Since 2017 you can continue to contribute when unemployed! Who knew..
https://dc.rakuten-sec.co.jp/resignation/#skip04-04
Depending on how much you contribute and what other income you might have when it's time to withdraw, this could still be preferential to just investing through a broker account and paying cap gains tax. But obviously limited choices of what to invest in.

I think it is still preferential because your contributions aren't taxed. IDeCo allows you to defer the income tax on contributions to a later date.

Another option for after 60 is to take ideco at 108万 per year tax free. (公的年金控除額60万円＋基礎控除48万円).
This assumes no 退職 tax free allowance you can use and you don't have other pension income eating up that tax free allowance.

You can also receive it while you're working, but in that case I assume your basic allowance would already be used up so you could only get 60万円 tax free.

This has been very interesting! I hadn't thought really about the tax implications too deeply.

Certainly enlightening for me! Just to clarify this point.

I think it is still preferential because your contributions aren't taxed. IDeCo allows you to defer the income tax on contributions to a later date.

I was saying that even if you are unemployed when making these contributions by investing cash on hand it might still be favorable.
At its most basic 400k per year would be tax free. But as you’d only be exposed to income tax on half of anything over the allowance and for many income tax on that amount could actually be less than 20.x of whatever capital gains you made.

[fools_gold]

I was saying that even if you are unemployed when making these contributions by investing cash on hand it might still be favorable.
At its most basic 400k per year would be tax free. But as you’d only be exposed to income tax on half of anything over the allowance and for many income tax on that amount could actually be less than 20.x of whatever capital gains you made.

Got it! I thought you were talking about iDeCo in general. My wife isn't working and pays into iDeCo, but only after filling up her NISA first.

[RetireJapan]

The tax-free allowance seems to be the same regardless of the level of your contributions.
[/quote]

This is why it is a good idea for anyone to open an iDeCo account and contribute at least the minimum 5,000 yen a month, as they will be able to build up the full 15m tax free allowance.

Anyone with kids, this is the advice you give them when they turn 20

[adamu]

Anyone with kids, this is the advice you give them when they turn 20

Unless they're going to retire outside of Japan, which is a difficult call to make at 20. Although they can still benefit from the income tax deduction and GGT-free investments until they move out of Japan. Maintaining the dormant account until 60 + dealing with receiving Japanese pension payments from abroad might be a hassle though.

[RetireJapan]

That would kind of be 'retire not in Japan' which is outside the purview of this site

[adamu]

Haha, true. But it's perfectly feasible somebody will want to retire in Japan and have kids who don't!

[ivanpgs]

"Ake-ome!" to everyone,

Allow me to bring this topic to life again, as my case of study is exactly the same that it was discussed here before.

Let me put you all into context before I get to my doubts.

- I started working in Japan in 2014.
- I started contributing to iDeCo in 2017.
- I am thinking of an early retirement at the end of 2033, being 55 years old.

My study case is the following. If I retire in 2033...

- I will use my taishokukin / retirement bonus allowance of 20 years contributing / working, being able to have 8 million yens free of tax.

https://www.nta.go.jp/publication/pamph ... l/02_3.htm

After the retirement, I will continue to contribute to iDeCo for 4 years more, 2034 (age 56), 2035 (age 57), 2036 (age 58), 2037 (age 59), ending up contributing from 2017 to 2037, that's it, for 21 years.

My questions are the following:

- (1) Having used the retirement bonus allowance for my retirement at the end of 2033. Did I also manage to build up an extra allowance for the iDeCo for the period between 2034 and 2037 of 4 years?

- (2) In the case of choosing the lump sum payment for iDeCo at the age of 60 (year 2038). Would it be all taxable? I guess that the answer is yes if I did not build up any extra tashokukin allowance

- (3) In the case of choosing to cash out the iDeCo receiving it from 60 to 64 years old (during 5 years), would I have a free tax allowance of 108万 per year (公的年金控除額60万円＋基礎控除48万円)?

Having a look at the NTA official page about the (公的年金控除額 and 基礎控除) I am not sure if both tax exemptions are added up together to your annual income or not before 65.

公的年金等の課税関係
https://www.nta.go.jp/taxes/shiraberu/t ... u/1600.htm

基礎控除
https://www.nta.go.jp/taxes/shiraberu/t ... u/1199.htm

It seems like the 基礎控除 is applied as a based tax free frame, and then the 公的年金控除額 is added after that. If that's how it is then, having the 108万 tax free window from 60 to 64 years old seems like the way to go. Then, starting receiving the national pension from 65 years old to get the 100%.

I hope that I explained myself clearly, as iDeCo cash out uses cases seem to be a tad complicated sometimes. I wish the NTA would have created a "use cases" official documentation about it

[ivanpgs]

Actually,

I was thinking further about it and came up with another use case.

Let's asume that an employee E-san starts his working career with 20 years old.

* E-san starts working for Company A, which offers him a salary package that contains a retirement package as well. E-san works for that company 15 years and leave the company at 35 years old, cashing out that retirement package. Wouldn't then the Company A use the "退職所得控除額" to calculate the deductions for that retirement package that E-san just cashed out? In that case the deductions would apply for the 15 years that the Company A contributed for that retirement package for E-san, which probably might be a Company DC (defined contributed) plan.

* E-san also started iDeCo while he was working at the Company-A, at the age of 30. As the iDeCo (individual defined contribution) plan is portable, even E-san leaving the Company-A would not end the plan, so he can even continue the contributions in his next company.

* Then, E-san started working for the Company B with 35 years old until he reaches 55 years old. He decided to leave the Company B as well towards an early retirement. The Company B also has a retirement package that E-san cashes out when leaving. As he has contributed for 20 years, wouldn't he also be benefitted for that retirement package deducting the 20 years for which Company B was contributing for this plan? (this would be the second time using the "退職所得控除額").

* Then, additionally, E-san has been contributing to iDeCo since he was having 30 years old. He continues to do that until he reaches 60 years old, even he is unemployed from 55 to 60. Then he decides to cash out his iDeCo plan using the lump sum and receiving an only payment at 60 years old. Wouldn't E-san be able to use the "退職所得控除額" again to calculate the tax free portion of his iDeCo during 30 years? I mean, as "individual defined contribution" plan, is it not a different free tax built up window different from the ones that Company A and Company B contributed?

My thought here is, is it not possible to have different "退職所得控除額" based on company based retirement package for which the company contributes (like Company Docs) or employee retirement packages (like iDeCo) where the individual is the one contributing? And, wouldn't it be possible that they can be cashed out at the same time (for instance, if the employee retires at 60 from the company and decided to cash out both, the Company retirement package and his iDeco) or at different times (like in my example above) but being deducted based on their contributed time (either using the company or the individual contribution time differently)?

I apologize in advance if I am just saying something with no sense at all, but just wanted to share my thoughts out load. I might need to search in the net for different examples / use cases in Japanese to try to understand it better. Maybe the traditional employee was stuck to the same company forever before, but as that is not the case now these kind of situations would be more usual nowadays.

In my current company they did not have a retirement package when I was hired but recently they decided to add it, counting from the year they implemented the improvement, not retroactively. But its also possible to cash it out if you work for at least 3 years (of course, you would not received a lot of money), that's why I though that maybe its possible to received different retirement packages from different companies along the way in your working career in Japan, and perhaps is also possible to calculate the "退職所得控除額" for all of them based on the contribution made for the company. Then, additionally do the same for iDeCo but separately when cashing out.

Sorry for the long post! (´･_･`)

[Moneymatters]

https://xn--vck0b9h632vz0vb.jp/%e7%a2%b ... 87%91.html

Cases 6,7,8 and 9 deal with people that changed company.

Might be of some use and if so would be very keen to see how you interpret things.

Case 4 explains how overlapping years are counted in a specific scenario whilst simultaneously providing a compelling argument for recreational drug use.

[ivanpgs]

Thanks a lot for the link Moneymatters,

It certainly has a lot of options but I got a bit lost with many similar cases. I would need to give another 20 to 30 reads after I polish my Japanese skills again

However, it pointed me in the right direction. Putting aside for now the case of E-san with multiple companies, that is similar to the ones in that article, I would like to focus on my first post in the thread. One company and early retirement. For that I just learn a couple of things that let me googled the case better:

1. Early retirement: 早期退職 (souki taishoku)
2. Overlap: 重複 (juufuku)

Then I found this article which I found it easier to understand (just for the early retirement case + iDeCo):

https://bank-academy.com/toushin/ideco-get

And then the key phrase for my case:
- "会社の退職金受取から１５年以内にiDeCoの一時金を重複期間は除外"
- "If you cash out the iDeCo as a lump sum within 15 years after you received your (I assume last) company retirement bonus, then the overlapped time is excluded (from deductions).

And then there are a couple of enlightening examples (at least for me):

Case 1:
- (a) iDeCo contributions started from 30 years old.
- (b) Working from 25 to at 55 years old and taking early retirement receiving the retirement bonus from your company.
- (c) Taking iDeCo lump sum at 60 years old. Then the above rule applies and then you can only get the non overlapped time between your last company's retirement bonus and the iDeco´s lump sum, that's it, 2 million of yens tax free on iDeCo´s lump sum.

Visual explanation:


Text explanation

会社勤務25~55歳、iDeCo加入30歳~60歳とすると…
退職金への退職所得控除：800万円 ＋ 70万円 ×（30年 － 20年）＝1,500万円
iDeCoへの退職所得控除：40万円 ×5年＝200万円（重複期間は除外）
→iDeCoの合計（元本+運用益）が200万を超えると税金がかかる！

Case 2:
- (a) iDeCo contributions started from 30 years old.
- (b) Working from 25 to at 50 years old and taking early retirement receiving the retirement bonus from your company.
- (b) Taking iDeCo lump sum at 65 years old. Then the above rule does NOT apply and then you can get the benefit of 30 years of tax free for iDeCo contributions, the maximum! A deduction sum of 15 million yens!

Visual explanation:


Text explanation

最後に、早期退職を考えている方へ。
「会社の退職金→iDeCoの一時金」のケースでは、15年空ければ退職所得控除を両方でフルに使えます。

たとえば50歳で退職なら、iDeCo一時金は65歳まで伸ばして受け取りとしましょう。
ただしiDeCoの退職所得控除は掛金を払っている期間で計算なので、65歳まで伸ばしてもカウントは30~60歳の30年分（つまり1,500万円）となる点のみ注意が必要ですね。

I have also found a downloadable pdf book in the net:

確定拠出年金(企業型)
手続きガイドブック
~制度の内容と各種お手続きのご案内~

The pdf name is "2-DC-Pension-Plan-Procedure-Guidebook-Japanese.pdf", and I found the following text in page 30, that might be related to that rule. (or maybe not, I am not sure, maybe someone with more Japanese skills that me would guess better. Here's a pic:



And the text just in case the picture gets deleted:

退職所得控除額は勤続年数に基づき次のように計算されます。

退職所得控除額は、一括受取(一時金)を受取る年およびその前年以前14年以内の退職所得と調整 して計算します。他の退職所得がある場合、一括受取(一時金)の受取額の計算の基礎とする期間と 他の退職所得の受取額の計算の基礎とした期間との重複を考慮した退職所得控除額を算出する必
要があります。該当する退職所得がある方は「退職所得の源泉徴収票のコピー」を提出ください。

And that's all. I think I got one of my cases cleared and extra information. But it would be great if someone can find an official document for the iDeCo stating something similar to this affirmation: "会社の退職金受取から１５年以内にiDeCoの一時金を重複期間は除外" or the one above

Hope I did not mess up the things more, haha. Cashing out the iDeCo choosing the right time to save money is just a pain!