iDeCo

iDeCo's tax benefits are structured in three stages. First, monthly contributions are fully deductible from taxable income. For a salaried employee earning 5 million yen annually who contributes 23,000 yen per month (276,000 yen annually), the combined income tax and resident tax savings amount to approximately 55,000 to 83,000 yen per year. Second, investment gains (dividends and capital gains) during the accumulation period are tax-exempt. Since these would normally be taxed at approximately 20%, this makes a significant difference over long-term investing. Third, favorable tax treatment applies at withdrawal through the retirement income deduction or public pension income deduction.

Contribution limits vary by occupation. Self-employed individuals can contribute up to 68,000 yen per month, company employees without corporate pensions up to 23,000 yen, and public servants up to 12,000 yen. Starting December 2024, the conditions for combining iDeCo with corporate defined contribution plans were relaxed, making it easier for more company employees to enroll.

Both iDeCo and NISA are tax-advantaged investment systems, but they differ significantly in nature. The biggest difference is liquidity. NISA allows selling and withdrawing at any time, while iDeCo funds are locked in until age 60 in principle. This "lock-in" is an advantage for ensuring retirement savings, but a disadvantage when unexpected cash needs arise.

As a practical approach, the rational strategy is to first secure an emergency fund, then maximize iDeCo's income deduction benefits, and invest surplus funds through NISA. iDeCo investment products are divided into principal-guaranteed types (fixed deposits and insurance) and risk-asset types (mutual funds). Given the long-term horizon until age 60, it is rational to center your portfolio on risk-asset types such as global equity index funds. Since fees (account management charges and trust fees) create significant differences over the long term, choosing low-cost products is an iron rule.