The new eternal NISA

Christmas came early this year

The outline of the new new NISA accounts, long rumoured and leaked, were announced this week. The FSA official page has not been updated at this point, but the broad picture is clear with just a few details yet to be confirmed.

The changes are great and address pretty much all the issues with the current NISA accounts (confusing, too complicated, annual contribution limits too small, tax-free duration too short, unable to rebalance within the accounts).

The new NISA (not to be confused with the planned 新NISA, which was due to start in 2024 but has now been scrapped to make way for this improved version) will start in 2024.

Because 新NISA was taken, I have seen a lot of sites referring to it as 新しいNISA. Personally, I like ‘eternal NISA’ as a name for this new version.

Positives of the new NISA system

There are three enormous improvements in the new NISA system compared to the current regular or tsumitate NISA.

The new NISA has no limit on the tax-free period. This is huge. You can invest and leave your investments to grow until you need them. Any capital gains will be tax-free forever, as will dividends. If you invest early enough, you could get decades of compounding growth.

The annual limits are much larger. You will be able to pay in up to 3.6m yen per year (1.2m yen in mutual funds, and 2.4m yen in whatever you want). A married couple with two NISA accounts would be able to invest up to 7.2m yen a year. That is going to make a big difference for all but the richest in society.

There is now a lifetime limit of 18m yen’s worth of contributions. Your investments can grow much more, but you can only put in 18m yen in total (6m in mutual funds, and up to 12m in something else). This compares favourably to the 6m yen limit of contributions to the current regular NISA or the 8m yen limit of contributions to tsumitate NISA.

Negatives of the new NISA system

I can’t actually think of any negatives right now. Sure, the lifetime limit could have been a bit more generous, but 18m yen invested by the time you are fifty years old should give you a pretty comfortable retirement if you let it grow tax-free into your 60s or 70s.

The annual contribution limits are larger than they are now, eliminating the limit on the tax-free duration makes the account infinitely better, and having one account reduces the analysis paralysis people ran into when trying to choose which version of NISA to use under the current system.

Actually there is one negative: I am going to have to rewrite the Guide to NISA, which I only just updated a few months ago. Sigh. Worry not though, anyone who bought the guide in the past will get a free copy of the updated version.

Unanswered questions of the new NISA system

There are a number of questions I have about the new system that I have not seen official answers to.

What about US citizens?

US citizens should avoid buying Japanese mutual funds, but they may be able to use the up to 2.4m a year/up to 12m lifetime allowance to buy individual stocks, as long as there is not a requirement to fill the mutual fund portion first. The now scrapped 新NISA had that requirement, but there was an exception allowed if you provided a reason, so that may still be an option.

Unfortunately the IRS is unlikely to recognise NISA as tax-exempt, and there is also the risk of them deeming certain Japanese conglomerates to be PFICs, so for many Americans the easiest thing will be to continue avoiding investing in Japan and just stick to using US brokers to invest.

How about you? Are you excited about the new system? My challenge will be finding enough money to max out the NISA accounts for my wife and me in the five years from 2024-2029. We are getting closer to retirement, so I would like to lock in that tax-free growth as soon as possible.

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17 Responses

  1. I guess this relates to your rollover point above, but if you can only invest a total of 6m in mutual funds, will that mean people who have been doing NISA for 5 years with 1.2m mutual fund investments each year can no longer buy any mutual funds in the new Nisa if they rollover? Also, even if they don’t rollover, will those previously purchased NISA mutual funds be counted towards the 6m limit?

    1. My understanding is that the new system is a clean start. Current NISAs will run as normal until their tax-free duration ends. They will not count towards the lifetime allowance. I’m not sure if it will be possible to roll over regular NISA into the eternal NISA.

      The mutual fund thing is not a limit, but a requirement. 1.2m annual/6m lifetime is reserved for mutual funds, the remaining 2.4m annual/12m lifetime you can buy whatever you want (mutual funds, ETFs, individual stocks).

      2. You wrote, “The mutual fund thing is not a limit, but a requirement.”. Do you mean that I MUST buy Japanese mutual funds? More explanation needed.

        1. I’m not entirely sure how it is going to work, but it sounds similar to the (now cancelled) new NISA (the new vesion due to start in 2024 that was replaced by the new new ‘eternal’ NISA).

          How that one worked is that there was a ‘safe’ mutual fund bucket (200,000 yen) that had to be used before the remaining ‘risky/free’ bucket could be used (1.02m yen).

          However, there was also a provision that ‘experienced’ investors could skip the ‘safe’ bucket requirement by submitting some paperwork.

          I presume this new NISA will also work in the same way: kind of require people to use the mutual fund portion first, but not enforce it too strictly. We’ll find out fairly soon I guess once the FSA publishes the details.

  2. Thank you for the summary, Ben! I had only ever thought about using the tsumitate NISA so I only looked into investing in mutual funds monthly. When you say “12m in something else”, does that mean we need to choose individual stocks for such 12m to gain the tax-free benefit? Or are there other options?

  4. I’m lucky to have access to Australian superfunds , so decided against investing in Japan , but move my salary there and move again from shares to property and cash balance giving me nice 5-6% . Set up investing in Japan but too complicated even I’m a fluent speaker .

    1. The current regular NISA allows you to invest in things listed on foreign exchanges (mainly US or Asian). I assume the new NISA will be similar, at least in the 2.4m a year ‘growth’ section.

      That PDF is very old -probably from 2013 or so. It is talking about the initial version of the regular NISA, which was 1m yen a year (since increased to 1.2m yen a year).

  6. I’m guessing it’s still not possible to leave Japan and keep your NISA? I really want to start investing through it (EU citizen), but there is a chance I will leave Japan in the next 5-10 years…

    1. No, if you leave Japan permanently your broker will likely ask you to close your account. It is then a balance between how long you think you will be here and how sure you are you will leave.

      For some people it will make sense to look for a broker in another country, for others it will make sense to invest in Japan, and for others a mix of the two (hedging your bets).

  7. One big drawback IMHO is that the account _still_ doesn’t let you rebalance in-place. The money gets out and you have to eat your contribution limit to put it back in.

    1. I’m not clear on how the new account is going to work in terms of reinvesting or rebalancing. Hopefully we’ll see more details soon!