Individual defined contribution pension (commonly known as iDeCo) and tax system
From January 2017, the number of eligible individuals to participate in the Individual Defined Contribution Pension (hereinafter referred to as iDeCo) has expanded. Partly because of this, the number of iDeCo subscribers increased from about 300,000 in July 2016 to about 1.3 million in July 2019. The expansion of membership in iDeCo, which offers tax incentives, is one of the policies that support asset formation in old age from the tax system side. The outline of the tax system is explained below.
Features of iDeCo
IDeCo is a pension system that accumulates a fixed amount every month until the age of 60, manages it using investment trusts, time deposits, insurance, etc., and receives it in a lump sum or in installments after the age of 60. Then, you can choose a financial product yourself and manage it to increase your retirement funds by adding it to your public pension. However, if the operation of iDeCo goes well, it will increase, but if it fails, the amount received will decrease. In principle, you cannot withdraw until you are 60 years old. In addition, if the enrollment period is less than 10 years, the age at which you can start receiving will be gradually delayed until you are 65 years old.
Main enrollment qualifications
In principle, self-employed people, office workers, civil servants, full-time housewives (husbands), etc., who are between the ages of 20 and 60 can join. However, those who live abroad, those who do not pay the national pension premium, those who receive a farmer’s pension, and those who work for companies that have introduced a corporate-type defined contribution pension, etc. You may not be able to join the club.
Tax incentives
The entire monthly premium is tax deductible, so you can save while saving taxes. In addition, all profits earned from investment are tax exempt. Also, when you receive the accumulated money, you can receive a retirement income deduction if you receive it as a lump sum, and a public pension deduction if you receive it in installments as a pension. In this way, iDeCo offers tax incentives when paying, operating, and receiving premiums. In addition, the procedure to receive the benefits of the tax incentive is not required if the premium is deducted from the salary, but if it is not deducted, it must be deducted by year-end adjustment. If you are a sole proprietor, you need to deduct your income by filing your tax return.
Latch
The premium can be set from 5,000 yen per month in increments of 1,000 yen. The upper limit of the premium varies from person to person. For example, a monthly fee of 23,000 yen for a company employee who does not have a defined benefit corporate pension at his place of employment, a monthly fee of 20,000 yen for a company employee who has only a corporate pension at his place of employment, and a monthly fee for a self-employed person. The monthly fee is 68,000 yen, 12,000 yen for civil servants, and 23,000 yen for full-time housewives (husbands). Also, from January 2018, it is possible to pay in a lump sum in the bonus month.
Example of tax reduction
For example, if you have a company employee who does not have a corporate pension at your place of employment: 35 years old, annual income: 4.8 million yen, and monthly contribution amount: 12,000 yen, the total tax of income tax and inhabitant tax will be about 28,800 yen per year. It will be reduced. Since iDeCo is fully tax deductible, taxable income is reduced and income tax and inhabitant tax are reduced. However, the amount of reduction depends on the situation such as annual income and public pension.