Switch to regular NISA for 2023?

[RetireJapan]

Just had a thought. If the government comes through with next year's proposals, and remove the tax-free duration from NISA accounts, would it be worth changing to regular NISA for 2023 from tsumitate, just to maximise the amount we can put away?

IE put 1.2m in regular NISA next year, and eventually it will be rolled into a tax-free forever NISA vs. put 400,000 into tsumitate NISA, which will also be rolled into a tax-free forever NISA at some point.

Seems like a sensible bet to me. Am I missing anything?

[TokyoBoglehead]

Just had a thought. If the government comes through with next year's proposals, and remove the tax-free duration from NISA accounts, would it be worth changing to regular NISA for 2023 from tsumitate, just to maximise the amount we can put away?

IE put 1.2m in regular NISA next year, and eventually it will be rolled into a tax-free forever NISA vs. put 400,000 into tsumitate NISA, which will also be rolled into a tax-free forever NISA at some point.

Seems like a sensible bet to me. Am I missing anything?

Does the proposal mention that they will retroactively convert all NISAS to unlimited duration or that all newly opened accounts will have no time limit?

Does the proposal mention if rollovers will be allowed? Arguably they will no longer be needed so I can see this procedure being axed.

The bet is that they are extremely generous with the proposal, the downside risk seems low though...
....

[RetireJapan]

It would seem reasonable to them to allow all current NISA accounts to roll into the new system, but I guess that might not be the case. Hmmm.

[JimNasium]

That was my thought when I heard about it. It will give me much more flexibility. And also I’ll move my taxable accounts over to NISA.

[adamu]

IE put 1.2m in regular NISA next year, and eventually it will be rolled into a tax-free forever NISA vs. put 400,000 into tsumitate NISA, which will also be rolled into a tax-free forever NISA at some point.

Seems like a sensible bet to me. Am I missing anything?

As we now know rollovers into Atarashii NISA are not allowed, this is actually a bad idea. The short 5 year limit means you could be left with less than you started with, and then being stuck paying tax on the recovery later.

For anyone opening a new account this year, Tsumitate is the sensible choice given the latest info.

[RetireJapan]

IE put 1.2m in regular NISA next year, and eventually it will be rolled into a tax-free forever NISA vs. put 400,000 into tsumitate NISA, which will also be rolled into a tax-free forever NISA at some point.

Seems like a sensible bet to me. Am I missing anything?

As we now know rollovers into Atarashii NISA are not allowed, this is actually a bad idea. The short 5 year limit means you could be left with less than you started with, and then being stuck paying tax on the recovery later.

For anyone opening a new account this year, Tsumitate is the sensible choice given the latest info.

Yep, all my new posts since the FSA confirmation have mentioned that I will be doing tsumitate NISA this year

[sutebayashi]

I think the most important thing is to just invest what you can, either way.

I was doing some calculations and I don’t see either choice as being clearly superior - at least by my assumptions.

If one has 1.2 million to invest, and puts it into regular NISA today I figure after 5 years it might be worth 1.9 million in five years (I am using annual compounding of 9.7% from myindex for an equities only portfolio).
Certainly the value might bomb toward the end of 2028 and that would be unfortunate timing…

If one has 0.4 million to invest this year and puts it in via T-NISA, investing in the same portfolio, I am not calculating it precisely but I figure it would take around 16-17 years to reach a similar 1.9 million yen in value. After 20 years it might be worth 2.5 million yen, so that’s a nice tax free gain in percentage terms, no doubt. (But the market might bomb then too, which would be unfortunate timing also.)

But meanwhile, the 1.9 million of a regular nisa might be worth 7.6 million after 20 years, although capital gains tax will be due on the difference, if one placed it in a taxable account rather than the new nisa tax free growth allocation. If the value did plummet after year five, it will still probably be worth more than the T-NISA would at that point anyways.

Hmm. When I put it like this, at least for me going with regular nisa this year seems better… 7 million less tax after 20 years, call it 5 million versus 2.5 million from a T-NISA.
I must be calculating something wrong or missing something?

Edit: fixed 1.097% to be 9.7%

[RetireJapan]

I must be calculating something wrong or missing something?

Did you calculate putting 800,000 yen in a taxable account alongside the tsumitate NISA? Otherwise you are not really comparing like for like...

[sutebayashi]

I must be calculating something wrong or missing something?

Did you calculate putting 800,000 yen in a taxable account alongside the tsumitate NISA? Otherwise you are not really comparing like for like...

No I didn’t! Ah yes, fair enough, thank you

So when I do that, assuming 800,000 straight into a taxable account from the outset, then after 20 years, the combined t-nisa plus taxable worth after taking into consideration taxes, does win by about 0.29 million yen.

[RetireJapan]

the combined t-nisa plus taxable worth after taking into consideration taxes, does win by about 0.29 million yen.

For me the biggest factor is the chance of having prices fall at the end of the NISA tax-free period, and the chance of that happening after 5 years seems much higher than the chance of it happening after 20.