For foreigners living in Japan, building financial assets is an important consideration. NISA and iDeCo are tax-advantaged investment programs ideal for beginners or those with limited funds. As long as certain conditions are met, foreign residents can also take advantage of these programs to grow their wealth.
In this article, we’ll break down the key differences between NISA and iDeCo and explain how to make the most of each option.
Table of Contents
Profile of Writer
Yukako Yamazaki
Representative of FP Office MIRAI;
Experienced as a Registered Customs Specialist, a bank teller, and transitioned to the path of a financial planner. Founded the financial planning office “FP Office MIRAI” in 2022.
With the motto “Changing the future through reviewing the household budget,” actively engages in household budget consultations, financial article writing, and book supervision, etc.
1st grade Certified Skilled Professional of Financial Planning, Certified Financial Planner®.
If you’re interested in other articles about finance in Japan, such as NISA and taxes, you might find this article helpful.
Chapter 1: Overview of NISA and iDeCo
What is NISA?
NISA stands for Nippon Individual Savings Account. As of January 2024, the system has been revamped to make it more user-friendly, with expanded investment limits and tax-free periods.
NISA is designed to help individuals start investing with small amounts through three key principles: long-term investing, diversification, and regular contributions. It serves as an accessible entry point into investing for people of all ages.
In Japan, investment gains from stocks and mutual funds are generally taxed at around 20%, and this applies to interest from bank savings as well. However, any profits earned within a NISA account are exempt from taxation, making it an efficient tool for building wealth.
What is iDeCo?
iDeCo is a private pension system in which individuals make regular contributions and choose how to invest their funds among options like mutual funds, fixed deposits, or insurance products. The total of your contributions and investment gains becomes your future pension fund. The final amount depends on how your investments perform.
Like NISA, profits earned within an iDeCo account are tax-free during the investment period. Although taxes apply when you receive the benefits, the system offers tax deductions—such as retirement income deductions or public pension deductions—to reduce the tax burden.
There are three ways to receive iDeCo benefits:
Lump-sum payment
Regular pension payments
A combination of both
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Chapter 2: Key Differences Between NISA and iDeCo
First, let’s take a look at the main differences between NISA and iDeCo in the table below:
| Category | NISA | iDeCo |
|---|---|---|
|
Eligibility Age |
18 and older |
20 to under 65 |
|
Investment Period |
Unlimited |
Until age 65 |
|
Minimum Contribution |
From ¥100 |
From ¥5,000 (in ¥1,000 increments) |
|
Maximum Investment Limit |
Tax-free investment cap: ¥18 million |
From ¥5,000 (in ¥1,000 increments) |
|
Tsumitate (Regular savings) limit: ¥1.2 million per year
Growth investment limit: ¥2.4 million per year |
¥240K–¥816K per year (varies by pension category) |
|
|
Investment Types |
Stocks, mutual funds, ETFs, REITs |
Mutual funds, fixed deposits, insurance products |
|
Investment Method |
Lump-sum or monthly |
Monthly contributions only |
|
Tax-Free Period |
Unlimited |
While funds are invested |
|
Tax Benefits |
Capital gains and dividends are tax-free |
Entire contributions are tax-deductible; gains are tax-free; tax breaks on withdrawals (retirement income deduction, public pension deduction) |
|
Withdrawal Rules |
Flexible—funds can be withdrawn anytime |
Generally locked in until age 60 |
|
Account Opening Fee |
Free |
¥2,829 (one-time fee) |
|
Account Maintenance Fee |
Free |
¥2,052–¥7,068 per year (varies by provider) |
|
Ease of Use for Foreigners |
✔️✔️ |
✔️ |
Both NISA and iDeCo offer tax advantages by making investment gains tax-free, and are fundamentally designed to support long-term asset building. However, they differ in terms of the specific tax benefits, withdrawal flexibility, and fees. It’s important to understand the features of each system before deciding which one suits your investment goals.
Chapter 3: Pros and Cons of NISA and iDeCo
Let’s take a closer look at the advantages and disadvantages of both NISA and iDeCo.
Pros and Cons of NISA
Pros
- Tax-free investing from age 18
- Start investing with small amounts
- No time limit on the tax-free period
- Wide range of investment options (stocks, mutual funds, ETFs, etc.)
- Can sell anytime
- Tax-free allowance can be reused
Cons
- Cannot offset losses against other gains
- Because funds can be withdrawn anytime, some may be tempted to react to short-term market changes
Pros and Cons of iDeCo
Pros
- Contributions are tax-deductible, reducing income and resident taxes
- Encourages disciplined saving for retirement
- Principal-guaranteed products are available
Cons
- Locked in until age 60 once enrolled
- Fewer investment options
- Fees apply when joining, during the investment period, and when receiving benefits
Generally, the longer your investment period, the lower the overall risk. That’s why starting early can significantly increase your chances of growing your wealth.
NISA is available from age 18, giving it an edge over iDeCo, which is limited to those 20 and older. In this sense, NISA offers a major advantage—especially as it allows long-term investing without ongoing fees.
On the other hand, if you’re in the workforce and looking to reduce your income and resident taxes while building a retirement fund, iDeCo may be the better option. Although you can’t access the funds until age 60, this restriction can actually work in your favor by encouraging disciplined, long-term saving.
Chapter 4: Which Should You Start With: NISA or iDeCo?
While it’s possible to use both NISA and iDeCo together, not everyone has the extra funds to invest in both at once. So, which one should you start with?
Consider the following points to help you decide.
| Your Financial Situation | Which to Start With | Why |
|---|---|---|
|
Limited income |
Start with NISA |
You can access your money anytime |
|
Stable income |
Start with iDeCo |
Focus on the tax-saving benefits |
|
High income and savings |
Use both NISA and iDeCo |
Take full advantage of both programs |
For those with limited income or younger individuals expecting major life events—such as marriage, buying a home, or having children—starting with NISA is recommended. One of NISA’s biggest advantages is flexibility: the money you invest can later be used for things like a home down payment or education expenses.
On the other hand, if your life events have settled and you have a stable income, starting with iDeCo may be more beneficial. That’s because the higher your income, the greater the tax-saving effect of iDeCo contributions.
If you have sufficient income and savings, the best option may be to use both NISA and iDeCo. This way, you can enjoy the flexibility of NISA along with the strong tax benefits of iDeCo.
Who Should Prioritize NISA?
Those investing small amounts (from just a few hundred to a few thousand yen)
Younger individuals with upcoming life events
Those interested in trying stock investments
Who Should Prioritize iDeCo?
Those preparing for retirement after major life events have passed
People with stable income and savings who don’t need early access to their funds
Individuals looking to reduce income and resident taxes
Those who prefer to invest in principal-guaranteed products
Who Should Consider Using Both?
Individuals with ample investment funds
Those who want to manage short-term funds and retirement savings separately
Chapter5: Things Foreigners Should Be Careful
Foreign residents in Japan can also take advantage of NISA and iDeCo. However, there are a few things to be aware of if you plan to move overseas.
NISA
As long as you reside in Japan, you can use a NISA account just like a Japanese citizen. However, if you move abroad for personal reasons, you must close your NISA account by submitting a Notification of Departure for Tax-Free Account to the financial institution where your NISA account is held.
If you’re temporarily leaving Japan—for example, for a work assignment overseas—you can maintain your NISA status by submitting a Notification for Continued Use of Tax-Free Account to your financial institution. In this case, you can continue to receive NISA tax benefits until December 31 of the year that marks the fifth anniversary of your departure. After returning to Japan, you’ll need to submit a Notification of Return.
If you do not return to Japan within five years, or fail to submit the Notification of Return, your NISA account will be closed. If you wish to resume using NISA after that, you’ll need to open a new account from scratch.
iDeCo
In principle, funds invested in iDeCo cannot be withdrawn until you reach the age of 60.
If you are a foreign resident working in Japan and enrolled in the Japanese social insurance system, and you are temporarily transferred overseas, you can continue contributing to iDeCo as long as you remain enrolled in your Japanese employer’s social insurance plan.
However, if you permanently return to your home country, you may be able to withdraw from iDeCo and receive a lump-sum withdrawal payment—but only if you meet all of the required conditions, such as a short contribution period and low total contributions. If these conditions are not met, you will remain in the plan as an account holder without contributions, and your investments will continue to be managed until you reach the age of 60. At that time, you’ll be eligible to begin receiving your benefits.
Chapter6: Summary
Both NISA and iDeCo offer tax benefits by making investment profits tax-free.
NISA is known for its flexibility and low fees, but unlike iDeCo, it doesn’t provide deductions on income or resident taxes.
Because iDeCo funds can’t be withdrawn until you turn 60, this restriction can be a pro or a con depending on your situation.
While investing is ultimately your own responsibility, foreigners who aren’t sure where to start might want to prioritize NISA for its greater flexibility.
Either way, it’s important to understand how both systems work, weigh their advantages and disadvantages, and choose the one that fits your lifestyle best.
