“Let’s wait until the iDeCo reforms in December” is a big no-no! You could lose “several million yen” without realizing the huge tax savings available

“I’ll wait until the December legislative amendment…”—could such a laid-back attitude actually lead to huge losses for Japanese people!? As interest in asset management grows amid rising prices and concerns about retirement, iDeCo is also attracting a lot of attention.However, a perception that the Reiwa 7 tax reforms have “worsened” the system has become widespread, and it appears that more people are adopting a “wait-and-see” approach to enrollment ahead of the reforms set to take effect this December.  

However, experts are sounding the alarm, saying, “The sooner you start iDeCo, the better—especially if you want to recoup your taxes.”We thoroughly examine the “wealth gap” between those who willingly throw away tax-free allowances and the benefits of compound interest, and those who turn the system to their advantage and come out on top. We delve into iDeCo strategies that you’ll definitely lose out on if you don’t know them.

“iDeCo Is Unnecessary” in the Shadow of NISA?

Since the launch of the current NISA program, one of the recurring topics in magazines and on news sites has been the comparison between “Tsumitate NISA” and “iDeCo.” I, too, have been interviewed on this topic several times and have consistently voiced my support for iDeCo. However, I’ve had the impression that such comparative articles have become less frequent recently.This is because I’ve sensed that enthusiasm for NISA has been rising—so much so that the term “NISA poverty” has even gone viral—thanks to its strong investment performance.

However, something has been bothering me. Earlier this year, when I was interviewed by a weekly magazine for a comparison piece on NISA and iDeCo—my first such interview in quite some time—I mentioned the tax savings, which is iDeCo’s biggest advantage. The reporter then asked, “But ultimately, you’re taxed when you withdraw the money from iDeCo, right?”I clarified the key points, but it seemed the reporter’s understanding differed from mine, and it was clear he wasn’t entirely convinced.

iDeCo will be revised in December ’26.Words like “deterioration” are flying around on social media, and there are reportedly quite a few people arguing that “iDeCo is unnecessary.” It’s true that with these upcoming revisions, some salaried workers may find iDeCo unnecessary, and fee increases are planned; however, the overall convenience of the system will improve significantly, thanks to measures such as raising the maximum contribution limit and the upper age limit for enrollment.It seems that the lingering effects of the changes to iDeCo’s withdrawal rules—introduced in the Reiwa 7 tax reform—have created a persistent perception that iDeCo is being progressively “deteriorated.”

As a result, it is presumed that people—like the reporter mentioned earlier—are increasing in number because the system’s true benefits are not being understood. This article aims to help readers correctly understand the tax-saving benefits of iDeCo, while also introducing the details of the December revisions.

“Tax Deferral” Is a Major Misconception

The most common misconception about iDeCo is likely the idea that, since taxes are levied upon withdrawal of the accumulated funds, it is merely a form of “tax deferral.”It is true that with iDeCo, both the principal and investment gains are taxed upon withdrawal. Consequently, the argument that “if the investment gains I’ve worked so hard to build up are going to be taxed anyway, it would be more advantageous to invest through NISA, where withdrawals are tax-free,” is often put forward as if it were fact.

However, this argument merely emphasizes one aspect of the story. iDeCo offers a substantial tax-free allowance, and in many cases, the withdrawals are actually tax-free. First, let’s perform a calculation comparing iDeCo with NISA to see how this works.

If You Receive No Retirement Benefits, It’s Effectively “Tax-Free”

If you receive your iDeCo assets as a lump-sum payment after age 60, they are treated as “retirement income (retirement benefits)” for tax purposes, and the retirement income deduction applies.The deduction amount is calculated using the following formula: if the contribution period is 20 years or less, it is “400,000 yen × number of contribution years” (minimum 800,000 yen); if it exceeds 20 years, it is “8,000,000 yen + 700,000 yen × (number of contribution years – 20 years).”

• [Example of the Retirement Income Deduction]
• ・For contribution periods of 20 years or less
• 　400,000 yen × 20 years = 8,000,000 yen (retirement income deduction amount)
• 　→ If the iDeCo lump-sum payment is 8 million yen or less, the entire amount is deductible, making it effectively tax-free
• ・For 30 years of contributions
• 　8,000,000 yen + 700,000 yen × (30 years – 20 years) = 15,000,000 yen (retirement income deduction amount)
• 　→ If the iDeCo lump-sum payment is 15 million yen or less, the full amount is deductible, making it effectively tax-free

For self-employed individuals without a retirement bonus, or salaried employees whose employers do not offer a retirement benefit plan or corporate pension, the retirement income deduction can be fully applied to iDeCo.For example, with a monthly contribution of 20,000 yen over a 20-year period, the principal would be 20,000 yen × 12 months × 20 years = 4.8 million yen. Therefore, as long as investment gains do not exceed 3.2 million yen, the lump-sum payment can be received entirely tax-free.

Note that with a monthly contribution of 20,000 yen and an annual return of 5%, the assets after 20 years will total 8.12 million yen (including 3.32 million yen in investment gains), which falls well within the tax-exempt limit.Furthermore, if this iDeCo user’s income tax rate is 10%, combined with a 10% local tax, they will receive an annual refund of 48,000 yen—which is 20% of the annual contribution of 240,000 yen.Over 20 years, this totals 960,000 yen. Even after accounting for iDeCo’s annual fees of approximately 2,000 yen, this is about 900,000 yen more advantageous than a NISA account with the same investment strategy. This is what is commonly referred to as the “tax-saving benefit” of iDeCo.

Even if you exceed the limit, the tax is “half”

Let’s also run a simulation based on a 30-year contribution period. With a monthly contribution of 20,000 yen, the principal would be 7.2 million yen; therefore, if investment gains are 7.8 million yen (15 million yen – 7.2 million yen) or less, the entire amount is tax-exempt.However, in this case, assuming an annual return of 5%, the assets after 30 years would total 16.31 million yen (with investment gains of 9.11 million yen), exceeding the 15 million yen tax-exempt limit. The tax liability on the amount exceeding the retirement income deduction limit is as follows.

Taxes on retirement benefits include income tax and resident tax (the Special Income Tax for Reconstruction is excluded because the calculations become too complex; the same applies below). Importantly, the portion of the retirement income deduction that exceeds the limit is taxed at “one-half,” as shown below.

• [Taxation Method for Retirement Benefits]

• (Severance Pay – Retirement Income Deduction) × 1/2 = Taxable Retirement Income

• Taxable Retirement Income × Income Tax Rate – Income Tax Deductions = Income Tax on Retirement Benefits

• Taxable Retirement Income × Resident Tax Rate (10%) = Resident Tax on Retirement Benefits

• Example 1: In the case of a 16.31 million yen iDeCo lump-sum payment (rounded to the nearest thousand yen; the same applies below)

• (16.31 million yen – 15 million yen) × 1/2 = 655,000 yen (Taxable Retirement Income)

• 655,000 yen × 5% (income tax rate) – 0 yen (tax credit) = 33,000 yen (income tax on the lump-sum payment)

• 655,000 yen × 10% (resident tax rate) = 66,000 yen (resident tax on lump-sum payment)

• Total income tax and resident tax: 99,000 yen

Since the total refund over 30 years is 1.44 million yen, the calculation shows that—including fees—this option saves you about 1.3 million yen compared to NISA.

Why There’s “No Loss” Even If the Limit Is Reached

The fact that only half of the amount exceeding the retirement income deduction is taxed can be considered a highly favorable measure. For example, let’s consider a case where the retirement income deduction limit is filled by a retirement payment from your company.In this scenario, the entire 16.31 million yen in assets accumulated under the earlier example (“20,000 yen in contributions, 30-year term, 5% annual return”) would be considered the excess amount.

• Calculation 2: If the entire 16.31 million yen iDeCo lump-sum payment is subject to taxation

• (16.31 million yen – 0 yen) × 1/2 = 8.155 million yen (taxable retirement income)

• 8,155,000 yen × 23% (income tax rate) – 636,000 yen (tax credit) = 1,240,000 yen (income tax on the lump-sum payment)

• 8,155,000 yen × 10% (resident tax rate) = 816,000 yen (resident tax on the lump-sum payment)

• Total income tax and resident tax: 2,056,000 yen

Next, regarding refunds: those whose retirement income deduction limit is fully utilized by their company’s retirement benefits—meaning their retirement benefits amount to approximately 20 million yen—are almost certainly employees of large corporations. In that case, since the income tax rate on taxable income is expected to be 20%, combined with the 10% local tax, 30% of the contributions will be refunded.If 72,000 yen—30% of the annual contribution of 240,000 yen—is refunded each year, that amounts to 2.16 million yen over 30 years. Taking into account iDeCo’s fees (60,000 yen over 30 years), it’s roughly a “tie” when compared to NISA.

Some people might be surprised to hear, “They’re taking 2.06 million yen in taxes!?” But even if you can’t use the retirement income deduction at all, thanks to the refunds, you can still end up with assets comparable to those in a NISA account. This illustrates just how favorable the tax treatment for retirement income is and how significant the tax savings benefits of iDeCo are.

NISA Investment Using “Refunds” Comes Out on Top

There’s a way to make iDeCo come out on top in the calculation mentioned earlier. Since you receive a tax refund every year, the strategy is to reinvest the entire amount into your investments—maximizing the tax-saving benefits.

For iDeCo users whose retirement income deduction limit is fully utilized by their retirement payout, the tax refund amounts to 72,000 yen. Invest this amount in a Tsumitate NISA account at a rate of 6,000 yen per month. Assuming a 30-year investment period and an annual return of 5%, the total—principal plus investment gains—will reach 4.89 million yen after 30 years.Since the total refund in Calculation 2 was 2.16 million yen, this means you’d save 2.73 million yen (4.89 million yen – 2.16 million yen) compared to investing through NISA. That’s a significant amount.

The calculations above are based on the assumption that you receive your company’s retirement lump-sum payment and your iDeCo lump-sum payment at the same time (i.e., in the same year). This can easily turn out to be a “bad move”; for example, if you receive your retirement lump-sum payment first and then receive your iDeCo lump-sum payment a few years later, you can claim tax deductions for the number of years that have elapsed between the two payments.While there are exceptions, in cases where the tax deduction limit is already filled by the retirement payout, receiving the lump-sum payment at the same time often results in a lower tax burden.

Taking these factors into account, it’s safe to say that, if you reinvest the tax refund, iDeCo generally offers better value.

It’s often said that investing through NISA is advantageous because profits are tax-free and benefit from the “compound interest effect,” but the NISA system and the compound interest effect are unrelated.Index funds popular among individual investors, such as the “Orkan” or “S&P 500,” simply reinvest dividends within the fund itself; the outcome would be the same regardless of which brokerage account is used.What people commonly refer to as the “compound interest effect” is nothing more than the “reinvestment of profits.” If that’s the case, reinvesting iDeCo tax refunds into your portfolio should yield a much higher compound interest effect.

Amendment in ’26! Enrollment Now Open to Those Under 70  

Let’s discuss the December ’26 amendments to iDeCo. There are two major points: “raising the eligibility age” and “raising the contribution limit.”

First, regarding the raising of the eligibility age. A new category called “Category 5 Participants” will be established for people aged 60 or older who are not eligible for the National Pension; this category will allow enrollment for those under 70.Until now, the de facto upper age limit was 65 for salaried employees and civil servants (Category 2 insured persons), and the same applied to self-employed individuals and others who enrolled voluntarily.With the creation of this new category, the upper age limit has been extended by five years, allowing people to continue making contributions for a longer period (however, certain requirements apply, such as ineligibility for enrollment if the person is already receiving the Basic Old-Age Pension or old-age benefits from iDeCo).

Significant Increase in the “Maximum Contribution Limit” for Company Employees

Next is the increase in the contribution ceiling. As summarized in the table below, the ceiling has been raised significantly, particularly for salaried employees and civil servants.

For salaried employees and civil servants, not only have the contribution limits been raised, but the rules have also undergone significant changes. Previously, if an individual was enrolled in an employer-sponsored pension plan—such as a defined contribution (DC) or defined benefit (DB) plan—the combined contribution limit for the employer-sponsored pension and iDeCo was 55,000 yen, with the iDeCo portion capped at 20,000 yen, as shown in the table(This meant there were cases where the 55,000-yen limit could not be fully utilized). With this amendment, the 20,000-yen cap on iDeCo contributions has been abolished, and the combined limit for corporate pensions and iDeCo has been raised to 62,000 yen, making the system more user-friendly.

The Only Salaried Employees Who “Don’t Need” iDeCo

One group to note here is those enrolled in an employer-sponsored DC plan who receive matching contributions. A matching contribution is when a participant contributes an amount that matches the company’s contribution. For those eligible for matching contributions up to 62,000 yen, there is no benefit to joining iDeCo.Employer-sponsored DC plans and the individual-type DC plan, iDeCo, are essentially the same system. This is because, with employer-sponsored DC plans, the company covers the fees, so participants do not pay any fees.

Furthermore, in line with revisions to the system, the fee paid to the National Pension Fund Federation will increase from 105 yen to 120 yen per month, and the billing cycle will change from the previous “contribution month” to “every month.” As a result, fees will be charged every month even if you stop making contributions.

It is also important to note that premium deductions under the new system will begin in January 2027. While requests to change contribution amounts are typically accepted starting the previous month (December 2026), an “early application” period has been set for this transition, running from September 1 to October 30.

Grow Your “Tax Deduction Limit” with 5,000 Yen a Month

I hope you now understand that iDeCo offers advantages over NISA for building retirement assets, but its biggest drawback boils down to the fact that “you cannot withdraw funds until age 60.”For people in their 20s and 30s, this is a major hurdle. In this regard, since NISA allows for withdrawals at any time, it’s fair to say that the prevailing view—especially among younger investors—is that “NISA is the only option” for asset management.

However, the tax-saving benefits of iDeCo are quite substantial. If you’ve misunderstood iDeCo and have been relying solely on NISA, why not consider allocating even a small amount to iDeCo? As explained earlier, the iDeCo deduction limit increases the longer you contribute.The fact that the deduction limit increases by 700,000 yen per year after 20 years is quite attractive. Start with a small amount, and as you get older, gradually increase your contributions with an eye toward retirement. The minimum iDeCo contribution is 5,000 yen. Even if you start in November, you can make contributions for two months within the calendar year, and those two months will still count toward your membership period.

One reason some people feel they “can’t quite trust” iDeCo is the belief that the current tax system is likely to be revised in the future. This is not an unfounded view; rules were indeed changed as part of the “Reiwa 7 Tax Reform.”Previously, if you received an iDeCo lump-sum payment first and then received a retirement benefit from your employer, you could claim the full retirement tax deduction for both as long as there was a five-year gap between them; however, starting in January 2026, this interval was extended to ten years. The concern is that such changes for the worse will continue in the future, much like a game of “rock-paper-scissors” where the rules are changed after the fact.

I don’t have a definitive answer on this, but the extension from five to ten years could be seen as a corrective measure to address a situation where some individuals were benefiting more than anticipated—a development that was unforeseen when iDeCo was first launched, as companies gradually began adopting a mandatory retirement age of 65. Personally, I consider this a reasonable amendment.