RetireJapan

Hi all. We are considering the best path forward to maxing the new NISA (for wife, not myself). She has around ¥11mm in a taxable account and wants to use this to fill her NISA. She can save ¥150,000 per month of new money. This is higher than what we would normally save for her but she/we want to max it by year 5.

We are not sure whether it would be better to save ¥150,000 per month in the new NISA (¥1.8mm by year end) and then at the end of the year transfer over another ¥1.8mm from her taxable account to maximize the year contributions.

Or, would it be better to move all ¥3.6mm at the beginning of the year from the taxable account to the new NISA and then save ¥150,000 into the taxable account monthly (this would only continue until she can lifetime max the new NISA) - repeating this cycle at the beginning of each year.

The reasoning for the latter method being it’s better to pay the tax on the taxable account and start the NISA earning as quickly as possible. Whether this is mathematically better than transferring at the end of the year though, I’m not really sure.

Hopefully that isn’t too confusing. I’d appreciate any suggestions on what might be the best way to do this. Cheers!

There is some discussion of this in this thread:

https://www.retirejapan.com/forum/viewtopic.php?t=2998

My unpopular opinion is KISS: Don't sell your taxable investments, just invest new money in the NISA.

Reasons not to sell existing investments and re-buy them in the NISA:
Out of market risk.
Opens you up to make mistakes or temptation to tinker.
You'll lock in capital gains tax, even if the market crashes and doesn't recover for 20 years (which will also waste your NISA allowance).

I think it's a judgement call: How much tax will you have to pay for selling, vs. how much will you save by keeping it in the NISA going forward? You can't tell, so that's why I favour keeping it simple.

There's one clear case where selling taxable investments makes sense: if you decided you didn't like what you were invested in/want to rebalance and are going to trade anyway.

At least I got the first reply before everyone else replies with the opposite advice

sanfransicko wrote: ↑Mon Nov 20, 2023 6:53 am She can save ¥150,000 per month of new money. This is higher than what we would normally save for her but she/we want to max it by year 5.

The minimum monthly payment required to max it in 5 years is ¥100k/mo. The rest you can transfer from taxable.

adamu wrote: ↑Mon Nov 20, 2023 10:11 am There is some discussion of this in this thread:

https://www.retirejapan.com/forum/viewtopic.php?t=2998

My unpopular opinion is KISS: Don't sell your taxable investments, just invest new money in the NISA.

Reasons not to sell existing investments and re-buy them in the NISA:
Out of market risk.
Opens you up to make mistakes or temptation to tinker.
You'll lock in capital gains tax, even if the market crashes and doesn't recover for 20 years (which will also waste your NISA allowance).

I think it's a judgement call: How much tax will you have to pay for selling, vs. how much will you save by keeping it in the NISA going forward? You can't tell, so that's why I favour keeping it simple.

There's one clear case where selling taxable investments makes sense: if you decided you didn't like what you were invested in/want to rebalance and are going to trade anyway.

At least I got the first reply before everyone else replies with the opposite advice

sanfransicko wrote: ↑Mon Nov 20, 2023 6:53 am She can save ¥150,000 per month of new money. This is higher than what we would normally save for her but she/we want to max it by year 5.

The minimum monthly payment required to max it in 5 years is ¥100k/mo. The rest you can transfer from taxable.

It really depends. Everyone's income situation is different. And things like age and employment status matter.

It'll take 15 years at 10万 a month to completely fill the full allotment.

If you can do it faster without touching the taxable account, that's great. If not, it's statistically more likely you'll save money with a lump sum investment.

DCA is a not an optimal strategy on papers but it offered people piece of mind.

.....

sanfransicko wrote: ↑Mon Nov 20, 2023 6:53 am She has around ¥11mm in a taxable account and wants to use this to fill her NISA. She can save ¥150,000 per month of new money.

The tsumitate part max is 100,000 per month, so you could do that, rather than 150,000.

This is higher than what we would normally save for her but she/we want to max it by year 5.

No need to rush just because of NISA, I think. On top of 100,000 new money in tsumitate, your wife’s 11 million in taxable account may take 5 five years to migrate to NISA anyway.

The downside of selling taxable is, of course the possible tax.

Ideally, we want to avoid paying that tax.

The legal way to do that, is to sell it when there is no tax due, and ideally (in terms of tax) even at a loss, since losses in one year can be used to offset taxable profits the next year (a different topic).

Also, delaying any tax payment is another possibly interesting option. I have my taxable account set to not deducting tax at the source, so I will only pay any tax the spring of the year after I realize profits.

Or, would it be better to move all ¥3.6mm at the beginning of the year from the taxable account to the new NISA and then save ¥150,000 into the taxable account monthly

I had thought the same, but recently I’m thinking, if I am going to tsumitate anyway, why not just use the tsumitate of NISA for that part? Maxing the NISA out would be nice, but tsumitate in NISA is nice enough too. But which was better will only be known this time next year.

The reasoning for the latter method being it’s better to pay the tax on the taxable account and start the NISA earning as quickly as possible.

It may not be better to pay the tax! One may indeed need to pay tax sooner or later, but what if there is a chance that you could pay less tax, if your assets decrease in value sometime next year?

A market decline will be a great time to switch from taxable to nisa, but as adamu alludes, one should take care to avoid being out of the market… for example, I want to sell from taxable and buy in nisa on the same day, but to do so, will need to have some free cash sitting around to be able to buy in nisa before the proceeds of the taxable account are settled and received.

In the worst case, one will have some taxable account tax to pay - but it should be possible to get some of that tax back via furusato nozei anyway

I was wondering why we keep mentioning tax because eventually one way or another, on those accounts either next year or the next 10+ it’s going to be withdrawn resulting in paying tax.
Surely it might be better to migrate some funds next year to max the nisa and take full advantage of the tax free growth over the next few years.withdrawal in the 10 years time will still result in tax being paid. No?

The issue is if there's no growth.

If you put new money in and it makes a loss, that sucks.

If you sell now, pay capital gains tax, then reinvest and it makes a loss, it sucks and you paid tax on it.

adamu wrote: ↑Fri Nov 24, 2023 6:32 am The issue is if there's no growth.

If you put new money in and it makes a loss, that sucks.

If you sell now, pay capital gains tax, then reinvest and it makes a loss, it sucks and you paid tax on it.

Yes, I see what you mean in that case. So basically we would be playing roulette. If it has gone up and goes up, we pay tax now or 10 years in the future. But if we move it now, we will pay tax on it NOW, in the hope that all future gains will be tax-free.

Then there is the negative side, if it has gone up we pay the tax due, but the stock market could go down, and we don't know how it would take to recover the losses and the lcoked on tax payments.

I guess that old adage PAST PERFORMANCE is NO guarantee of future performance comes into play.

Well I have quite a bit to move.

I wonder if there is a financial advisor who can give advice, that isn't going to be chasing commission, or a bonus to give us unbiased financial advice. His only mission would be to look out for us. Even if that did cost a flat fee.
Sorry been bitten by misselling many a time, and the number one culprit was commissions/bonuses, and men in suits.

Bubblegun wrote: ↑Fri Nov 24, 2023 6:44 am

adamu wrote: ↑Fri Nov 24, 2023 6:32 am The issue is if there's no growth.

If you put new money in and it makes a loss, that sucks.

If you sell now, pay capital gains tax, then reinvest and it makes a loss, it sucks and you paid tax on it.

Yes, I see what you mean in that case. So basically we would be playing roulette. If it has gone up and goes up, we pay tax now or 10 years in the future. But if we move it now, we will pay tax on it NOW, in the hope that all future gains will be tax-free.

Then there is the negative side, if it has gone up we pay the tax due, but the stock market could go down, and we don't know how it would take to recover the losses and the lcoked on tax payments.

I guess that old adage PAST PERFORMANCE is NO guarantee of future performance comes into play.

Well I have quite a bit to move.

I wonder if there is a financial advisor who can give advice, that isn't going to be chasing commission, or a bonus to give us unbiased financial advice. His only mission would be to look out for us. Even if that did cost a flat fee.
Sorry been bitten by misselling many a time, and the number one culprit was commissions/bonuses, and men in suits.

I don't think you need an advisor. You just need to ask yourself how long this money is going to stay invested and untouched.

As well you need to understand that lump sum investing outperforms as a strategy statistically, but that offers no guarantee.

If you are in you 30s with 3 or more decades of growth. If you're unlikely to fill the New nisa with new capital in the next decade etc etc. Then selling out of your taxable is logical.

If your older, and will have the capital to fill that new nisa relatively quickly it's not probably worth it.

Tsumitate Wrestler wrote: ↑Fri Nov 24, 2023 9:03 am

Bubblegun wrote: ↑Fri Nov 24, 2023 6:44 am

adamu wrote: ↑Fri Nov 24, 2023 6:32 am The issue is if there's no growth.

If you put new money in and it makes a loss, that sucks.

If you sell now, pay capital gains tax, then reinvest and it makes a loss, it sucks and you paid tax on it.

Yes, I see what you mean in that case. So basically we would be playing roulette. If it has gone up and goes up, we pay tax now or 10 years in the future. But if we move it now, we will pay tax on it NOW, in the hope that all future gains will be tax-free.

Then there is the negative side, if it has gone up we pay the tax due, but the stock market could go down, and we don't know how it would take to recover the losses and the lcoked on tax payments.

I guess that old adage PAST PERFORMANCE is NO guarantee of future performance comes into play.

Well I have quite a bit to move.

I wonder if there is a financial advisor who can give advice, that isn't going to be chasing commission, or a bonus to give us unbiased financial advice. His only mission would be to look out for us. Even if that did cost a flat fee.
Sorry been bitten by misselling many a time, and the number one culprit was commissions/bonuses, and men in suits.

I don't think you need an advisor. You just need to ask yourself how long this money is going to stay invested and untouched.

As well you need to understand that lump sum investing outperforms as a strategy statistically, but that offers no guarantee.

If you are in you 30s with 3 or more decades of growth. If you're unlikely to fill the New nisa with new capital in the next decade etc etc. Then selling out of your taxable is logical.

If your older, and will have the capital to fill that new nisa relatively quickly it's not probably worth it.

I could fill the new NISA with a lump sum of 2.5 million in January and then fill the rest monthly with DCA. (the same system I have done for 30 years). Now, I've got about 7 years before early retirement.(62ish) but I could delay for a further 5 years (or more) " More" is absolutely Not in my lexicon.

Sadly I can't fill the NEW NISA with NEW MONEY.

Bubblegun wrote: ↑Fri Nov 24, 2023 1:22 pm
I could fill the new NISA with a lump sum of 2.5 million in January and then fill the rest monthly with DCA. (the same system I have done for 30 years). Now, I've got about 7 years before early retirement.(62ish) but I could delay for a further 5 years (or more) " More" is absolutely Not in my lexicon.

Sadly I can't fill the NEW NISA with NEW MONEY.

'Growth' portion of the new NISA is 2.4 million. The rest must be tsumitate/DCA.

https://retirewiki.jp/wiki/NISA#New_NISA_from_2024

In your situation, I agree that selling in taxable and buying in new NISA makes sense.
If you have any 'old' NISA funds which are finishing in the next few years re-investing them in new NISA is probably a good idea too.