What is an iDeCo (確定拠出年金) account?
iDeCo, also known as 個人型確定拠出年金 in Japanese, is a self-managed pension system in Japan. The name iDeCo stands for individual defined contribution, and as part of this system you’re able to invest in:
- Mutual funds
- Cash savings
- Insurance products
However, it’s important to note that you can’t access your money until you reach the age of 60 (or later – see the table below), at which point you can choose to receive a lump sum or monthly installments.
To encourage people to open an iDeCo account, the government reduces your income tax (and local inhabitant tax). This is the best option for retirement savings if you are eligible, will be in Japan until retirement, and won’t need the money in the meantime.
Why Choose iDeCo?
Japan’s iDeCo pension system is one of the world’s most favourable personal pension instruments. Its unique features include:
- Pre-tax income investment, similar to the 401k in the U.S.
- Tax-free cash-out (up to a limit based on years invested), akin to the Roth IRA in the U.S.
- Ability to rebalance at any time without cashing out.
- Flexibility to make contributions until the age of 65.
This means you can enjoy the benefits of both pre-tax income investment and post-tax income withdrawal, making it an excellent choice for retirement savings. The official website has an iDeCo tax-saving simulator (in Japanese).
Using Your iDeCo Account
How you use your iDeCo account depends on how long you have until you plan to cash out (any time between 60 and 75 years old). Here are some general tips:
- The longer you have to invest the more you should focus on stocks, as these have the greatest potential returns.
- Diversify your portfolio to include both Japanese and foreign stocks. You might also want to balance your investment with some bonds.
- Consider using passive funds, which typically have much lower fees than active funds.
- Most people will want to build diversified portfolios including Japanese and foreign stocks, possibly balanced with some bonds, with the lowest fees possible.
When Can You Access Your Money?
You can access your iDeCo account funds when you reach 60 years of age, provided you have made contributions for at least ten years. If you have contributed for less than ten years, you’ll have to wait a bit longer to cash out. Please refer to the table below for more details:
| Years of Contribution | Minimum Age of Cash Out |
|---|---|
| 10 years or more | 60 |
| Between 8 and 10 years | 61 |
| Between 6 and 8 years | 62 |
| Between 4 and 6 years | 63 |
| Between 2 and 4 years | 64 |
| Between 1 month and 2 years | 65 |
Note: You can close your account early and withdraw the money only if you meet all the following conditions:
- If you leave Japan and are not a Japanese national.
- If you’ve had your iDeCo account for less than five years.
- If you have 250,000円 or less in the account.
See the Japan government English-language iDeCo website for the full list of criteria. It’s also a great introduction to the system.
Recommended Resources for iDeCo
 | The RetireJapan Guide to iDeCo is a comprehensive guide to Japan’s iDeCo Accounts. What they are, what they are for, who should open one and who shouldn’t, how to choose a provider, what investments to make and how to manage the account for retirement. |
 | The book 個人型確定拠出年金 iDeCo 活用入門 by Minako Takekawa, is an excellent introduction to iDeCo. It is one of the best resources if you are comfortable reading in Japanese. |
Next Steps: How to Open an iDeCo Account?
You can open an iDeCo account at various banks and financial institutions. When choosing where to open your account, consider the following factors:
- Monthly fees
- Range of products offered
- Ease of using the service (including call centre, website, and in-branch services)
This site (in Japanese) has a list of institutions that offer iDeCo accounts, including their fees. Some popular ones are SBI (SBI証券), Rakuten (楽天証券) and Monex (マネックス証券).
For advice on which company is most suitable for you, or for any other questions about Japan’s iDeCo system, feel free to visit the friendly RetireJapan forum.