Maximising iDeCo contributions when also doing fuka nenkin

[kuma]

This is for those paying kokumin nenkin and fuka nenkin (https://www.retirejapan.com/blog/guest- ... ka-nenkin/)

Fuka nenkin shares the same 68,000 yen/month (816,000 yen/year) allowance as iDeCo, and iDeCo contributions must be in 1,000 yen increments. So those paying fuka nenkin (400 yen/month or 4,800 yen/year) and wanting to max their iDeCo may well set contributions at 67,000 per month. This never needs tinkering with and will run until eligibility ends, so there are many benefits.

However, with a bit of tinkering every two years, could one do a little better? The below form suggests you can set up payment schedules in two-year batches: https://www.ideco-koushiki.jp/library/pdf/K-030.pdf  

My understanding is that you have cumulative monthly allowances of 68,000 yen per month; you can't ever 'get ahead' of the cumulative limit, but you can 'top up' so as to 'catch up' with months in which you didn't invest the maximum, and unequal payment schedules could be used for bonus months, etc.

So you could contribute 67,000 yen x 11 months and then top it up with 74,000 yen in the final month, (ie annual contributions of 811,000 yen to iDeCo, and 4,800 yen to fuka nenkin, totalling 815,800; just 200 yen short of the annual limit).

Or for those wanting to get as much invested as early as possible, my understanding is that the below represents the optimised schedule:

Is it worth it? An extra 7,000 yen per year (with the tax breaks) invested for a couple of decades might end up being non-trivial. But doing the paperwork every two years might be a faff.

This is just hypothetical for me at the moment as I took the plunge into employment so am ineligible for fuka nenkin. However, I'm a flight risk back to freelancing, so may try this out in the future.

What are people's thoughts? Worthwhile? Too much hassle?

[RetireJapan]

Way too much hassle for my liking

Seems like anything to do with iDeCo takes several months to process too...

[Gareth]

Hmmm. Very interesting.

My iDeCo application is in the pipeline at the moment so will be getting started very soon. Income has been a bit up and down over the past year for some reason. So I've decided to start off at 30,000 yen a month to see how 2021 turns out. But come November and if I have had a good year, could this be a way of making up the lost allowance?

11 months x 30,000 = 330,000
Plus 4,800 for Fuka gives 334,800

If I could contribute 481,000 (816,000 - 334,800 and round down to the nearest 1000) in December if I were able to, that would be great. But I guess it doesn't work like this. I guess you would have to commit to it two years in advance. But could you cancel paying the December amount if you were unable to I wonder?

If you find out any more info, do post more!

[kuma]

Ben, point taken re too much hassle!

Gareth, I think the iDeCo provider accepts changes in payments mid-year for situations like yours; this wouldn't have to be set in stone on a two-year plan. Prob easiest to liaise with your provider as the info might be provider-specific? But yeah, in principle, should be able to top up at the end of the year -- guess many people with bonuses (not me!!) might use bonus months to top their payments up a bit if not contributing the max... if the paperwork hurdle isn't too high to do so.

My understanding is that any allowance pre-dating the start of your iDeCo is 'lost', eg if your account is up and running in March, then you wouldn't get the allowance for January and February, and so your annual allowance would be less than the 'full' allowance.