iDeCo and NISA: Key Features and Benefits Analyzed

Frustrated with Japan’s paltry 0.200% bank savings rate? I know I am! 

Let’s explore how iDeCo and NISA can help you grow your money more efficiently—with generous tax advantages.

Both iDeCo and NISA are government-backed programs designed to support asset building in Japan through tax-advantaged investing. 

While iDeCo is tailored for long-term retirement savings with tax-deductible contributions, NISA provides greater flexibility—allowing tax-free investment returns and the freedom to withdraw funds whenever you need them.

I found the process confusing at first—so if you're in a similar boat, I hope this article helps guide your investment journey in Japan.

Overview of iDeCo

iDeCo (Individual-type Defined Contribution Plan) is a private pension plan. It helps you build future assets by contributing and managing your chosen investment amounts. Contributions can be made until age 65, and old-age benefits can be received from age 60 onward.

We also offer additional helpful resources for those interested in the pension system, including our guide on Pension in Japan – What Foreign Workers Need to Know.

Advantages

• Contributions are fully deductible from income, Your iDeCo contributions qualify for full income tax deductions, reducing your income tax and resident tax.
• Investment returns are reinvested tax-free, Unlike taxable accounts (subject to Japan’s 20.315% capital gains tax), iDeCo lets your investment returns grow tax-free.
• Choose Your Payout, Lump Sum or Annuity, If received as a lump sum, the "retirement income deduction" applies, and if received as an annuity, the "public pension deduction" applies, with no tax on amounts up to a certain limit.
• Foreigners can join, Available if you are insured under National Pension.

Points to Note

• Withdrawals usually start at age 60.  If you're leaving Japan early, you may qualify for a lump sum—only if specific conditions are met. (See the next section “Challenges and Considerations for Foreign Residents.”)
• You must start withdrawing by age 75.  If you don’t take action by then, the funds in your account may be transferred to a government-managed account.
• The pension assets in iDeCo can be transferred, when changing jobs or leaving employment, though each transfer requires a separate procedure.
• Payroll deduction requires employer involvement. To pay iDeCo contributions via employer payroll deduction, you need to request your employer to complete an "Employer Payment Certificate." Although this certificate was abolished with the December 2024 reforms, it remains required for payroll deductions. Ask your HR for more information.
• Minimum contribution is ￥5,000/month with increments of￥1,000.
• No tax benefit without taxable income. If you have no taxable income, you won’t receive the income tax deduction benefit for your iDeCo contributions.

Eligibility and Maximum Contribution

Eligibility and maximum contribution limits for iDeCo can be a bit complex. However, the National Pension Fund Association provides clear, detailed guidance. See the eligibility and contribution chart in the middle of this page.

Eligible products: Mutual fund, Insurance product, Cash Saving

Excluded products: ETF, Individual stocks

How to Open an iDeCo Account

You can open an iDeCo account through a variety of banks and financial institutions in Japan.

Note that the application process can take about 1–2 months to complete.

• Apply Online: You'll need your Email Address, ID Documents (Resident card+My number), Bank Account Details, Pension Number.
• Account Opening Review: The financial institution will review your documents.
• Account Opening Completion Notice: You'll get a notice when the review is complete.

Three Key Points to Choose an iDeCo Provider

• Low or No Management Fees
• Lots of Investment Options
• Good Support System (Call center, Website)

Popular providers

SBI (SBI証券 ) 

Rakuten(楽天証券) 

Monex (マネックス証券）



Overview of NISA

NISA stands for Japan (Nippon) Individual Savings Account, a tax-advantaged investment scheme in Japan. It enables individuals to enjoy tax-free capital gains, dividends, and distributions on investments within set limits, unlike taxable accounts subject to Japan’s 20.315% tax on capital gains, dividends, and distributions.

It aims to encourage investment and asset building among households in Japan.

NISA was introduced in 2014. Then, in January 2024, the New NISA launched with expanded benefits like larger investment limits and an unlimited tax-free period. This guide covers the 2024 New NISA.

Category	Tsumitate Investment Quota	Growth Investment Quota
Purpose	For long-term, small, regular investments	For flexible, larger-sum investments
Eligibility	18 years old and beyond
Annual Investment Limit	¥1.2 million	¥2.4 million
Life Time Investment Limit	¥18 million (Growth Quota Limit ¥12 million)
Reinvestment Capacity	Allowed. If you sell, the proceeds free up your investment limit.
Combination allowed	Yes. You can use it simultaneously.
Tax Benefits	Capital Gains/Dividends/Distributions - Tax free
Period tax benefits	No-limits
Eligible Products	NISA-approved mutual funds focused on long term growth	Stocks, ETFs, REITs, and broader range of mutual funds
Excluded Products	Funds with terms under 20 years Monthly dividend funds Certain complex derivatives	Stocks under special supervision Some high-risk investment trusts
Withdrawal	Anytime

(Source: Created by Aki based on data from the Financial Services Agency  )

Advantage

• Tsumitate: Tumitate basically means regular monthly contributions, ideal for long-term growth.
• Growth: For flexible, larger-sum investments, allowing both lump-sum and regular contributions.
• Tax-free holding period is unlimited.
• Once opened, your account remains valid indefinitely.
• Combined use of Tsumitate and Growth Investment Quotas is allowed.
• Foreigners can open an account: You’ll need to provide your identification documents with a Japanese address (a residence card or special permanent resident certificate with at least two months remaining before expiration) along with your My Number.

To learn more about My Number Card in Japan, check out our dedicated How to get your My Number Card in Japan.

Points to Note

• Withdrawals are allowed anytime: You can sell assets in your NISA account at any time. However, doing so may limit the long-term compounding benefits of your investment.
• Workplace NISA: Participants invest a fixed amount regularly through payroll deductions or direct account withdrawals, selecting from financial products offered by a NISA provider contracted by their employer (e.g., a securities firm or financial institution).

Unlike iDeCo, Workplace NISA does not offer income tax deductions on contributions. However, some companies may provide incentive contributions (奨励金) to encourage participation. These incentives are treated as taxable income but can boost your overall investment amount.

Check whether your company offers a Workplace NISA program and any incentives that come with it.

• NISA Tsumitate minimums vary by institution—many start at ¥100, like Rakuten Securities (Mutual fund) and SBI Securities, while traditional banks or firms often require a minimum of ¥1,000.

Eligible products:

• Tsumitate: NISA-approved mutual funds focused on long-term growth
• Growth: Stocks, ETFs, REITs, and broader range of mutual funds

Excluded products: 

• Tsumitate: Funds with terms under 20 years, Monthly dividend funds,Certain complex derivatives
• Growth: Stocks under special supervision, Some high-risk investment trusts

How to Open a NISA Account: 

Note that the application process usually takes a minimum of two days to complete.

• Apply Online: Email Address, ID Documents (Resident card+My number), Bank Account Details 
• Account Opening Review
• Account Opening Completion Notice

Key Points to Choose an NISA Provider

• Low or No Management Fees
• Lots of Investment Options
• Good Support System (Call center, Website)

Popular providers

SBI (SBI証券 ) 

Rakuten(楽天証券) 

Monex (マネックス証券）

Tip: I recommend either SBI or Monex. Since iDeCo is a long-term investment, keeping costs low is essential. Both of these securities firms are known for being cost-conscious. Monex, in particular, selects financial products with a strong emphasis on low fees.



Challenges and Considerations for Foreign Residents

Both iDeCo and NISA are available to foreigners, provided they meet conditions such as age, valid residency status, and possession of a My Number card. However, there are important considerations—especially for U.S. Citizens.

For U.S. Citizens (all U.S. Tax payers)

• Both NISA and iDeCo offer tax advantages within Japan. However, under U.S. tax law, these benefits are not recognized. All U.S. taxpayers are required to report global income, including overseas retirement and investment accounts.
• In addition, both NISA and iDeCo fall under the scope of FATCA (Foreign Account Tax Compliance Act). This means U.S. taxpayers must report them on IRS forms, and any gains or distributions may still be taxable in the U.S.
• U.S. Citizens must also watch for PFIC (Passive Foreign Investment Company) status, which can apply to NISA/iDeCo investments. PFIC may trigger complex U.S. tax rules, potentially taxing gains at the highest rate (up to 37% plus interest).  Check out this link for more details and exceptions.
• Due to these tax complexities, NISA and iDeCo accounts may not align with U.S. tax rules and could lead to additional reporting requirements or unexpected tax consequences.
• U.S. Citizens, regardless of where you live or earn income, are subject to worldwide income taxation by the U.S.

For Other Foreign Nationals:

Non-U.S. foreigners can benefit from Japan’s tax-free treatment, but check your home country’s tax laws (e.g., Canada taxes worldwide income, UK after 15 years for non-domiciled). Use tax treaties to avoid double taxation and monitor residency, as short stays or non-resident status may lead to account closure.

iDeCo Withdrawal Rules When a Foreigner Moves Abroad

You can only receive the lump sum and withdraw from iDeCo, if you meet all of the conditions below. (The eligibility requirements on or after December 1, 2024, are as follows.)

• You are under 60 years old.
• You are not enrolled in a corporate DC pension plan. (You can transfer your iDeCo assets into a corporate defined contribution pension plan and manage them together.)
• No Longer Eligible to Join iDeCo: If you’re a foreign national who contributed to iDeCo while living in Japan and has since moved abroad, you likely meet this condition. Note: If you have only left Japan temporarily with a valid re-entry permit, then you are not eligible to apply.
• You are not a Japanese citizen living overseas (age 20–59)
• Your total contribution period is between 1 month and 5 years, OR your account balance is ¥250,000 or less.
• You are not eligible for disability benefits.
• It has been less than 2 years since you lost your iDeCo or corporate DC membership.

The withdrawal rules can be complicated. Be sure to check with your iDeCo account provider for details.

For more on leaving Japan, don’t miss our blog post: Leaving Japan – What You Need to Do Before You Go.

Language Barriers

SBI Securities and Rakuten Securities are popular for their low-cost services, but their platforms are primarily in Japanese, posing challenges for non-Japanese speakers. Monex Securities also operates mainly in Japanese but offers some English information, such as company overviews and investment reports (Click this link). 

Here’s a breakdown of support options:

• Monex: FAQ, call center, chat support (bot or person), email, on-site PC support.
• SBI: FAQ, call center (including weekends), chat support (bot or person), email, technical support desk (weekdays until 19:00).
• Rakuten: FAQ, call center, chat support (bot or person), on-site PC support.

To navigate language barriers, consider using browser translation tools or choosing Monex for partial English support, though core investment tools may still require Japanese proficiency.

Security Risks for Investors:

On May 8, 2025, the Financial Services Agency (FSA) reported that many cases of unauthorized stock trading happened from January to April 2025, affecting 9 securities firms due to hacked accounts.

Investors using NISA or iDeCo should secure their accounts with strong passwords, two-factor authentication, and regular monitoring to protect their investments. Be sure to check with your service provider.

Source: Nikkei

Our Story: A Bumpy Start with NISA

My American husband recently began using NISA, but the process wasn’t entirely smooth.

First, we tried an online securities firm, hoping to include U.S. Treasury bonds in his portfolio. However, they don’t sell them to U.S. citizens — a restriction commonly associated with FATCA compliance.

Next, we turned to a brokerage affiliated with our bank. While the in-person support was helpful, my husband still had to fill out the application in Japanese, including writing his address in kanji and his name in katakana. We tried negotiating, but in the end, it was quicker for him to just practice and write it himself.

Then came the PFIC issue — to avoid complications under U.S. tax rules, we decided to eliminate foreign mutual funds from his NISA portfolio entirely.

As for U.S. Treasury bonds, they initially said it was possible — but after further internal checks, they advised against it, again due to FATCA-related concerns.

In the end, we opted to take advantage of Japan’s NISA tax exemption by investing in Japanese stocks. Although we’ll still need to report and pay taxes on dividends in the U.S., it’s a better option than earning negligible interest from a Japanese bank account. 

Since Japanese stocks can be more volatile, it's important to consider how they fit into the overall risk balance of your portfolio.

iDeCo vs. NISA or Both ? 

International residents frequently evaluate whether to invest in NISA or iDeCo, depending on their financial goals. 

Alternatively, a strategic allocation to both may be optimal for those with sufficient resources. As a universal solution does not apply, it is best to explore the key differences between these programs to make your decision.

Category	iDeCo	NISA
Investment period	20 years old through 65 years old	18 years old and beyond
Annual Investment Limit	¥144,000 - ¥816,000 (Depending on categories)	Tsumitate: ¥1.2 million Growth: ¥2.4 million (Life maximum: ¥18 million)
Tax Benefits	Contributions are fully tax-deductible Growth (Capital Gains/Dividends) - Tax Benefit	Growth (Capital Gains, Dividends, Distribution) - Tax free
Eligible Products	Cash saving Insurance Mutual Fund	Tsumitate: NISA-approved mutual funds focused on long-term growth Growth: Stocks, ETFs, REITs, and broader range of mutual funds
Withdrawal	Basically after 60 years old	Anytime

(Source: Created by Aki based on data from the National Pension Fund Association/iDeCo  &  Financial Services Agency/NISA  )

iDeCo: Ideal for Reducing Your Taxes

• iDeCo contributions are fully tax-deductible, which means they lower your income tax and resident tax each year.
• You can choose to invest in low-risk options like cash saving or insurance, or aim for higher growth with mutual funds.
• Your money is locked in until retirement age (usually 60+), so it’s not flexible for short-term needs.

Pro Tip: The higher your income, the more tax you save with iDeCo. For high earners, the tax benefits are significant.

NISA: Flexible and Tax-Free Growth

• With the NISA, you can invest and withdraw anytime—ideal for major life events like buying a house, going back to school, or even career breaks.
• All capital gains, dividends and distributions from investments are tax-free.
• It’s a great way to grow wealth while staying flexible—but unlike iDeCo, contributions are not tax-deductible.

What Should You Invest In?

If you're extremely risk-averse, using iDeCo for Cash saving or insurance still offers tax benefits. But if you're aiming to grow your money over time, mutual funds are the way to go—especially since gains from both iDeCo and NISA are tax-exempt.

Younger Professionals: Watch Out for Fees

• iDeCo charges account maintenance fees, so if you're only contributing a small amount, fees can eat into your gains.
• New NISA has no account fees, making it more efficient for those just starting out.

Can You Use Both?

Absolutely. If you can invest more, consider using both iDeCo and NISA.

Example: If you're a full-time employee and can invest ¥100,000 per month:

• Put ¥75,000 into NISA
• Put ¥25,000 into iDeCo

This way, you get:

• Tax-free investment growth (via both plans)
• Income tax deduction (via iDeCo)

It’s a smart, balanced way to save and invest for the long term.

Which One Is for You?

• Want tax deductions now? → iDeCo
• Want flexibility and access to your money? → NISA
• High income? → iDeCo gives bigger tax savings
• Hate market risk? → Use iDeCo for cash saving or insurance
• Can handle both? → Combine NISA + iDeCo for the best of both worlds

Fully understand the advantages and disadvantages of both programs before investing.



How to Build Assets Using iDeCo and/or NISA

Once you’ve set up your iDeCo or NISA account, the next step is building your portfolio. Here's what to consider:

Key Factors When Building Your Portfolio

• Age and Retirement Goals Think about when you want to retire, your desired lifestyle, and how much income you’ll need. These factors help define your investment time horizon and asset mix.
• Risk Tolerance How much market risk can you emotionally and financially handle? Volatility is part of investing, so understanding your comfort zone is key.
• Financial Products Choose based on your goals: mutual funds (balanced, equity, or bond), REITs, or other available options offered through iDeCo and/or NISA.
• Passive vs. Active Funds Passive funds track a market index and typically have lower fees. Active funds are managed with the goal of outperforming the market but often come with higher costs.

Don’t Just Invest—Understand What You’re Buying

Many experts suggest that to steadily build wealth while minimizing capital loss, you should follow three basic principles:

• Long-term (Invest for at least 10 years)
• Consistent (Make regular contributions—tsumitate)
• Diversified (Spread your investments across asset classes)

These basics are a great start—but building your own portfolio is essential.

One of the biggest mistakes is blindly trusting whatever securities companies are selling. Even if you choose one of their recommended products, make sure you understand what you're putting your money into.

For mutual funds, at the very least, check:

• NAV (Net Asset Value)
• Performance (since inception, 10 years, 5 years)
• Asset Allocation
• Top Holdings and Their Weight

You’ll find all of this in the fund’s monthly report. The “Top Holdings” section shows which companies your money is actually invested in.

Recommended Resources (Japanese Only)

If you're new to investing or portfolio planning, it’s worth taking time to learn. Here are some helpful government-run tools (so there’s no sales bias):

FSA Life Plan Simulator (人生設計シミュレーター)

FSA Tsumitate Investment Simulator (つみたて投資シミュレーター)

iDeCo Official Learning Page

FSA NISA Investment Guide

For Kids: Learn About Money at Unko Gakuen

Wrap up

Traditionally, many people in Japan have kept their savings in banks. Working after retirement is always an option if your savings fall short—but it's not the only path.

These days, more people are aiming for FIRE (Financial Independence, Retire Early). Interestingly, many of them still choose to work—not because they have to, but because they want to.

And if there’s something you truly want to pursue, financial freedom gives you the power to do it.

If that’s your goal, iDeCo and NISA can be powerful tools to help you get there.

Start early, stay consistent, and make your money work for you!

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