Re: Retirement planning
Posted: Mon Nov 11, 2024 10:35 pm
I think we are so lucky on this forum to have so many followers who are so knowledgeable about Japanese finances especially the pension system, I don't even think the Japanese pension office know all this. The Retire Japan Forum really is a step up in terms of content with personal finance, even compared to other personal finance forums.Tkydon wrote: ↑Mon Nov 11, 2024 3:00 pmThere is a lot of nuance in 'Pension Deductions'.Roger Van Zant wrote: ↑Mon Nov 11, 2024 7:52 am Eh? Every employer I have had in Japan has deducted my pension contributions directly from my pay packet....
If you are a Part Time Worker or a Contractor, then you are responsible for your own Pension. You have to pay the Basic National Pension Contribution of Y16,980 yourself, and if you want to use iDeCo you can pay up to Y68,000 per month...
If you are employed full time, then the Pension Contribution for National Kousei Nenkin is 18.3% of your Gross Salary, 9.15% paid by you and deducted from your paycheck before Tax and the other 9.15% paid directly by your employer, again before tax, but it doesn't show up on your payslip.
Your employer may also, or alternatively, have another company Defined Benefit Pension Plan or a Defined Contribution Pension Plan (also known as a Japan 401k), which they may pay, or may provide matching if you choose to pay. In this case, it may limit the remaining Tax Free Allowance that you can use for additional iDeCo.
iDeCo for an employee with no such benefit is limited to Y23,000 per month.
In your case, it would seem that you are getting half of that benefit Tax Free from your Employer's system, leaving you the additional space for an iDeCo Contribution of Y12,000 per month.
If your Employer provided Pension Plan(s) were using all of the available Tax Free Benefit, then you woyuld not be permitted to contribute to iDeCo at all.
People in Shigaku Kyosai are also paying Kousei Nenkin, split 50/50 with their employer, and the additional Shigaku Kyosai Mutual Aid Pension Contributions, again Tax Free, leaving them the additional space for an iDeCo Contribution of Y12,000 per month. I understand this will increase next year to Y20,000 per month. I haven't looked at the details.
Now, if iDeCo is deducted directly from your Paycheck, the employer will adjust Withholding Tax to reflect the fact that iDeCo, along with National Pension, Health Insurance, Nursing Insurance, Unemployment Insurance and other payments are withdrawn before tax, and you will only be taxed at the National Level on the residual income after the tax free payments have been removed.
If the iDeCo payments are paid by you from your bank account, the employer does not know about those payments or the amounts, and so cannot adjust your Withholding Tax until you provide the Postcard at the Year-End Adjustment - Nenmatsu Chousei, so when they do get that information, they can refund the excess tax withheld through the year, or you can file for the Refund at Kakutei Shinkoku.
You also receive a benefit in Reduced Residents' Taxes in the following year, as your Taxable income is reduced by the Deduction of the Tax Free Pension Contributions and other Insurance Payments.
You are receiving those tax benefits, just in the form of reduced taxes in each paycheck, rather than in a lump sum refund for Withholding Tax over-paid through the year.
The Tax benefit for a Y12,000 per month iDeCo is as calculated above depending on your marginal National Income Tax Rate, plus an additional 10% Residents taxes on the Pre-Tax amount, which I didn't include above.