RetireJapan

The readers of this forum have probably heard about the new tax-free investment programme that will be launched in Japan in January next year, called Tsumitate NISA. It will give individual investors aged 20 years and older tax exemption on dividends and capital gains derived from fund investments of up to 400,000 a year for a fixed period of twenty years. The allowable amount of tax-free investing in a regular NISA is 1.2 million yen, so three times as high as in a Tsumitate NISA on a yearly basis. But the regular NISA will only run for five more years.

It seems that the largest tax-free amount individual investors can get would be by using a regular NISA for five years and then using a Tsumitate NISA for 15 years after that. That would give a total of twelve million yen of tax-free investment - six million yen in a regular NISA and six million yen in a Tsumitate NISA. But money invested in the regular NISA would only enjoy five years of interest compounding? What would be the best way to use regular NISA and Tsumitate NISA together?

Hi Dan

I wrote about this a bit in June: http://www.retirejapan.info/blog/-tsumitate-nisa

I guess we'll see how things work out once the new accounts start.

Another factor is that you can only buy mutual funds in the new NISA.

I also kind of hope they will extend the NISA duration, or replace it with some other kind of similar product

The difference between investing twelve million yen and eight million yen is four million yen. I guess it depends on how likely your investment is to compound a larger amount of interest than that difference?

Tsumitate NISA is set for a fixed term. Another option instead of extending the period of the programme would be to make it a rolling term, so that investors who start the programme at a later time would still get the full twenty years -- that's not the case now. It allows fund investments, which includes investment into exchange-traded funds meeting certain criteria.

I find the various NISA accounts needlessly confusing: I think it's due to conflict between different government departments

I'm sure it reduces the number of people signing up!

They took the UK system and made it considerably worse...

RetireJapan wrote: ↑Fri Sep 01, 2017 1:17 am
I wrote about this a bit in June: http://www.retirejapan.info/blog/-tsumitate-nisa

Hi!

I read the link you posted, and it states:

If you are only able to invest up to around 500,000 yen a year, then the new NISA is clearly a better option. The restriction to mutual funds shouldn't be too much of a burden as long as you choose a provider that offers a range of no-fee funds.

You wrote this about 1 year ago. Has your opinion changed or is it the same?

This is about 40k JPY per month. I don't understand why you set this limit. Could you please explain it to me?

Also, I don't know how long I will live in Japan. My wife is Japanese, but we would like to move to my home country in a few years and live there until we need to come back and take care of her parents. In this case, would you recommend Regular Nisa or Tsumitate Nisa?


Thank you!

The annual limit for tsumitate NISA is 400,000 yen. You cannot invest more than this. The annual limit for regular NISA is 1.2 million yen.

If you can fill a regular NISA account, that might be a better choice. If not, the tsumitate has a longer duration. You can take your money out of either at any time, so leaving Japan should not be a problem

Hi again,


I more wanted to know why you set 500,000 yen a year as a limit for when the new Nisa is better than the old.

I now did my own calculation. I tried to attach the excel file for people to check themselves, but file format was not allowed. I can e-mail it to anyone who wants it.

To summarize: Tsumitate Nisa is ALWAYS better, no matter how much you invest ASSUMING:

• You start investment year 2019

• You invest the SAME AMOUNT EVERY year for TWENTY YEARS. (see bottom for other lengths)

• Money you can not invest in Tsumitate NISA, you invest in the stock market.

• You take out ALL money on the same day after 20 years.

• Average return rate is 5% per year before tax no matter investment form (Tsumitate NISA, Regular NISA and Stocks).

• You invest all the money at once in the beginning of the year.

• Tax on stock profit is 20.315%

• The regular NISA is not extended

Extra assumptions for Regular NISA:

• You switch to Tsumitate NISA when Regular NISA disappear

• All return from Regular Nisa is invested in stocks when the accounts has to be closed (5 years after opening)

Senario 1, You can invest 400'000 JPY /year
Senario 1a, you choose Tsumitate Nisa. Return is 13,887,701 JPY after 20 Years
Senario 1b, you choose Regular Nisa, and then Tsumitate Nisa after 5 years. Return is 13,426,115 JPY after 20 Years
Summary: Tsumitate Nisa is better

Senario 2, You can invest 415'000 JPY /year
Senario 2a, you choose only Tsumitate Nisa, (400'000 JPY /year) and spend the extra 15'000 JPY. Return: 13,887,701 JPY after 20 Years
Senario 2b, you choose Regular Nisa, (415'000 JPY /year). After 5 years you switch to Tsumitate (400'000 JPY/year) and Stocks (15'000 JPY/year). Return is 13,906,260 JPY after 20 Years
Senario 2c, you choose Tsumitate Nisa (400'000 JPY /year) and stocks (15'000 JPY /year). Return is 14'363'636
Summar: Tsumitate+Stock is best, Secound is Regular Nisa, and third is Only Tsumitate Nisa.

Senario 3, You can invest 1'200'000 JPY /year
Senario 3a, you choose only Tsumitate Nisa, (400'000 JPY /year) and spend the extra 800'000 JPY. Return: 13,887,701 JPY after 20 Years
Senario 3b, you choose Regular Nisa, (1'200'000 JPY /year). After 5 years you switch to Tsumitate (400'000 JPY /year) and Stocks (800'000 JPY /year). Return is 39'033'850 JPY after 20 Years
Senario 3c, you choose Tsumitate Nisa (400'000 JPY /year) and stocks (800'000 JPY /year). Return is 39'270'929
Summar: Tsumitate+Stock is best, Secound is Regular Nisa, and third is Only Tsumitate Nisa.


Extra comment, Regular Nisa is the best alternative until (and including):
year 2023 with any investment OVER 401'000 /year
year 2024 with investment of 450'000 JPY /year
year 2028 with investment of 800'000 JPY /year
year 2032 with max for maximum investment (1'200'000 JPY)

Wow, that is great. Thanks for putting this together.

Could you send me the file to info@retirejapan.info please?

RetireJapan wrote: ↑Tue Oct 30, 2018 8:06 am Could you send me the file to info@retirejapan.info please?

I have sent it to your email. Please give me your feedback.