How to invest inheritance

[cocacola]

To me, buying some kind of property seems like rather a concentration of a lot of money in a single asset class.

I did think about property investment in the past too, but those management hassles were one reason I thought otherwise.

Now I have REIT mutual funds (eMAXIS) as about 5-6% of my portfolio, and so feel like I have that base covered.

To cocacola, I would suggest you consider opening an account with other than MUFJ.

For the kids, investing in global equities seems like a good idea. Over a span of 10 years or more, such an investment is highly likely to be profitable.

For yourself, mutual funds are fine and I use them myself for accumulating. But if you are wanting to supplement your income, then you could consider some dividend / distribution paying investments too. A book about ETFs I am reading now has a suggestion of a 60/40 equites / bonds portfolio, made up of the VYM etf + BND etf.

This is just an idea, to throw something else out there

The management of the property also has me a bit hesitant to get into the real estate investment game... I could pay a management company to handle things, but that's even more yennies out of my pocket... I guess it would be nice to own property to give to the kids later, but I guess my heart is not into it enough to feel that the risk/hassle is worth it... but, I would like to be able to look at it from a different angle.

I am signed up with Monex (actually, the signup process is almost complete). I'll see how Monex is for me this year, and if it is better than MUFJ (which I think it is), I'll get her an account started next year. Or...

You mentioned VYM -- actually, I have been quite interested in the Vanguard ETFs and have searched for a Japanese equivalent or some sort of way to purchase Vanguard products in Japan. I think Rakuten might have a couple of their products (within "wrappers"?)... would I need to start an account at IB to access the full Vanguard product lineup? I have read on this forum something about foreign exchange and tax hassles if going down that route...

Dividend-paying mutual funds or ETFs sound very nice... I'm just worried about the tax implications on the dividends... if I choose a mutual fund or ETF (purchased on a taxable account) which I opt to purchase more of itself using the dividends, would I still be taxed on any "gains", even though I didn't cash them out? When would the taxable event occur? When I order the fund (or exchange) to pay me the dividends in cash? Sorry for the simple question.

Thanks for the tips!

[Tkydon]

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[cocacola]

The funds available vary by NISA Provider. If your Provider doesn't have it, check other Providers, and next year is All Change, so check back when next year's docs are ready...

Distributions and Dividends are taxable if they are distributed to you. If they are reinvested within the instrument without being distributed to you they are not taxable until you sell, and then they will be taxable as Capital Gains (assuming not in NISA, in which case Tax Free).

I will talk to my Japan accountant about the foreign tax credit.

And thanks for clarifying that dividends are not taxed if they are reinvested.

[Tkydon]

The funds available vary by NISA Provider. If your Provider doesn't have it, check other Providers, and next year is All Change, so check back when next year's docs are ready...

Distributions and Dividends are taxable if they are distributed to you. If they are reinvested within the instrument without being distributed to you they are not taxable until you sell, and then they will be taxable as Capital Gains (assuming not in NISA, in which case Tax Free).

I will talk to my Japan accountant about the foreign tax credit.

And thanks for clarifying that dividends are not taxed if they are reinvested.

There are Mutual Funds / ETFs that pay out or distribute dividends, and there are Funds / ETFs that do not, but entirely internally reinvest the funds without puncturing the wrapper of the Mutual Fund or ETF.

A 401k or iDECO would also serve as a wrapper so that reivestment of dividends / distributions within the 401k or iDECO would be tax free because they do not puncture the wrapper of the 401k or iDECO.

[sutebayashi]

I am signed up with Monex (actually, the signup process is almost complete). I'll see how Monex is for me this year,

One of the good options!
Besides the basic account, if you also open a foreign securities account with them, you’d be able to access Vanguard ETFs etc, so you wouldn’t need worry about an IB account from that perspective.

I have read on this forum something about foreign exchange and tax hassles if going down that route...

If going through a tokutei account with a Japanese broker, it calculates what Japanese tax is owed so foreign exchange related to ETFs is not a hassle there, in my opinion.

The hassle part I think is the fact that the US withholds 10% tax from dividends paid, and Japan taxes around 20%.
Through an annual Japan tax return you can get a deduction considering the 10% paid to the US. The admin for this deduction is one of the more annoying, pesky parts of filing a tax return. (I want to keep my ETF portfolio limited to keep this hassle to a minimum, as I also have foreign currency interest income which also has the same problem and hassle.)

Japan mutual funds are said to have an advantage there, since double and sometimes triple taxation can be avoided, not to mention the paperwork.

On the other hand if receiving dividends were an objective, and otherwise striving for absolute lowest ongoing fees / costs over time seems worth it, ETFs are a good option, I think. I personally also like the clarity about pricing of market traded funds, although am also a happy mutual fund user too. (My forays into ETFs recently started primarily due to boredom of mutual funds, which talks to how good they are I guess)

[cocacola]

One of the good options!
Besides the basic account, if you also open a foreign securities account with them, you’d be able to access Vanguard ETFs etc, so you wouldn’t need worry about an IB account from that perspective.

I did a search online for Rakuten Vanguard-like funds and found this. I think it's a document which explains the changes in naming of their Vanguard-like funds. I then did a cursory search on Monex and see that they offer some (if not all) of these Rakuten products. Seems like Monex does offer these. I'm not totally sure the details of these Rakuten products, but if they perform or are similar to their Vanguard counterparts, would it be better to just purchases these in Japan, without going through a foreign securities account?

The hassle part I think is the fact that the US withholds 10% tax from dividends paid, and Japan taxes around 20%.
Through an annual Japan tax return you can get a deduction considering the 10% paid to the US. The admin for this deduction is one of the more annoying, pesky parts of filing a tax return. (I want to keep my ETF portfolio limited to keep this hassle to a minimum, as I also have foreign currency interest income which also has the same problem and hassle.)

Hmm, seems like a bit of a pain... but if the returns are worth it, I guess there's no choice. I'm pretty bad with numbers and filling in accounting-related documents, I would most likely hire an accountant to do that paperwork for me... I wonder if it is all worth it.

On the other hand if receiving dividends were an objective, and otherwise striving for absolute lowest ongoing fees / costs over time seems worth it, ETFs are a good option, I think.

I think, eventually, converting the dividends to cash is what I am striving for. But I just want to reduce my tax/fee burden as much as possible. I am thinking of around a 20-year future time horizon before I will stop the dividends reinvesting into the fund, and begin taking them as cash. Also, depending on my total income at that time, I will probably have to pay an income tax percentage, on top of any capital gains tax. Taxes are hilarious: the gov't takes a chunk while not putting any risk down...gotta love 'em.

Attaching a screenshot of that Rakuten/Vanguard fund list.

[cocacola]

There are Mutual Funds / ETFs that pay out or distribute dividends, and there are Funds / ETFs that do not, but entirely internally reinvest the funds without puncturing the wrapper of the Mutual Fund or ETF.

A 401k or iDECO would also serve as a wrapper so that reivestment of dividends / distributions within the 401k or iDECO would be tax free because they do not puncture the wrapper of the 401k or iDECO.

Reinvestment within the Wrapper would not result in a taxable event.
If the reinvestment is done entirely within the wrapper of the Mutual Fund / ETF / 401k or iDECO, with the Administrator making no distributions, then the reinvested amount is not subject to tax, because there was no distribution.


If Dividends are distrubuted outside the wrapper, then that is a taxable event.
If the dividends (or other distribution) are paid out, they have pierced the wrapper, then they are taxable, even if they are subsequently reinvested. The distributed funds will be paid out, taxed and then reinvested by buying more Units (or something else).

Thank you very much for the additional details. I am planning to hold for the long-term, without puncturing the wrapper, as you say!

[sutebayashi]

I did a search online for Rakuten Vanguard-like funds and found this. I think it's a document which explains the changes in naming of their Vanguard-like funds. I then did a cursory search on Monex and see that they offer some (if not all) of these Rakuten products. Seems like Monex does offer these. I'm not totally sure the details of these Rakuten products, but if they perform or are similar to their Vanguard counterparts, would it be better to just purchases these in Japan, without going through a foreign securities account?

I took a look at the VTI one on Monex and it says the 信託報酬率 is 0.162％. This is quite low, but vanilla VTI etf expense ratio at Morningstar is said to be 0.030%

I think ETFs should typically beat mutual funds for expense ratio - this is their main cost competitiveness advantage.

But there isn’t much in it.

You can plug in how much money you are thinking you’ll have and look at the actual annual fee you’d be paying in each case and see if it seems worth pursuing, considering the accounting overheads as well. Say you inheritance proceeds are 50,000,000 JPY, then if I got it right the annual fees for the mutual fund would be circa 80,000 yen, versus 15,000 for the 0.03 VTI ETF.

Taxes are hilarious: the gov't takes a chunk while not putting any risk down...gotta love 'em.

Indeed. I sure have strong personal opinions about the purpose of tax policy and the detrimental effects on behavior and economic activity when the policy makers get it wrong.

[Gulliver]

Condolences.

Where are you from?

How long have you been in Japan?

Is the Inheritance in Japan, or overseas?

Will you be the only heir in Japan, or will the kids also inherit?

If the inheritance is overseas, do you plan to bring it all to Japan?

Thanks for the condolences.

I am from Canada, been in Japan for about 15 years. The inheritance is in Canada -- I have to pay Japanese inheritance tax on it . The kids are not in the inheritance. I am planning on bringing most of the inheritance, if not all, to Japan.

Any particular reason you want to bring the money into Japan?

[sutebayashi]

If one is a Japan tax resident, having an inheritance invested through a Japan broker would have an advantage of being easy to report taxable income on, no?

If left overseas, it would seem a hassle to deal with Japan income tax reporting, because they don’t offer tokutei koza accounts overseas.

But then, if one could find an overseas investment vehicle that would never pay dividends or realize income otherwise, leaving it overseas might have its attractions. But again conversely, one would need to report overseas assets if worth more than 50,000,000 yen…

Ugh! Just thinking about this reminds me of the option of not retiring in Japan (at least to the extent of being a tax resident)