Need advice for a friend (iDeCo vs. tsumitate-NISA)

[Roger Van Zant]

A friend of mine wants to start making more of an effort with investing.
She's a Japanese national, 43, single mother, with two teenage sons.
She runs a small English school from her house, and also works a couple of shifts each week at a local coffee shop.
Income before taxes is about 400,000 yen per month.
She has some savings, around 2~3 million yen, just sitting in her bank.
She pays into 国民年金.

She currently invests in some kind of mutual fund through her crappy local bank, but the fees are high, and from what I can see, the fund is heavily skewed towards Japanese companies. She basically got hood-winked into signing up by her bank.

She doesn't have much left over each month to invest, perhaps only 10,000 ~ 20,000.

I told her about my iDeCo and tsumitate-NISA (both 100% eMaxis Slim All Country), and she is keen to start using these.
At the moment she has neither.

My question is, should she open an iDeCo first, or a tsumitate-NISA? Or....something else?

Thanks.

[zeroshiki]

Since she's Japanese, iDeCo is probably the best thing to fill up first assuming she's ok for that 10-20k a month being locked away until she retires.

The priority is always iDeCo -> NISA because of the double tax advantage (although I'm not sure how the double tax advantage works for self-employed people, hoping someone comments on this)

[Roger Van Zant]

Since she's Japanese, iDeCo is probably the best thing to fill up first assuming she's ok for that 10-20k a month being locked away until she retires.

The priority is always iDeCo -> NISA because of the double tax advantage (although I'm not sure how the double tax advantage works for self-employed people, hoping someone comments on this)

Just to confirm, by "double tax", you mean tax free when she puts the money in and tax free when she takes the money out in retirement?

[adamu]

Just to confirm, by "double tax", you mean tax free when she puts the money in and tax free when she takes the money out in retirement?

It's capital gains tax free. For income tax, it's tax free when it goes in, tax-deductible on the way out, so not quite as good as that. Still much better than NISA though, especially that the pre-tax income can compound. Tell her to read Minako Takekawa's book if she needs more info - it's got everything and explains it really well.

Probably the easiest win would be to divert new investments into iDeCo instead of those mutual funds.

If she's self employed, she could even slowly drip feed the mutual funds she has into iDeCo too, because her iDeCo allowance will be pretty high (assuming she's on Kokumin, not Kosei nenkin).

[Beaglehound]

Since she's Japanese, iDeCo is probably the best thing to fill up first assuming she's ok for that 10-20k a month being locked away until she retires.

The priority is always iDeCo -> NISA because of the double tax advantage (although I'm not sure how the double tax advantage works for self-employed people, hoping someone comments on this)

Income/residence tax benefits work in the same way for self-employed. You just have to declare Ideco contributions in your tax return.

[Roger Van Zant]

I see.

I think she wants to close her existing fund, and transfer the lot to her new iDeCo. Can she do that? (i.e. pay a one-off lump sum in?)
If not, I guess cash out the money to her bank account and then pay it back into the new iDeCo over the course of a few months?

I am not sure how much she can pay in monthly thereafter....maybe 23,000 yen? I know the limit depends on your circumstances.
I myself can only pay 12,000 yen per month into my iDeCo.

[adamu]

If she's self-employed and paying Kokumin Nenkin it'll be ¥68,000 a month. Depends what kind of pension she has. Can't invest a lump sum.

Cash out + drip feed works. But it might be better to sell them off monthly, depending how much she has invested.

But please tell her about the book so she can get the info direct from an expert too, rather than third hand advice that's also been translated to English and back

[Roger Van Zant]

If she's self-employed and paying Kokumin Nenkin it'll be ¥68,000 a month. Depends what kind of pension she has. Can't invest a lump sum.

Cash out + drip feed works. But it might be better to sell them off monthly, depending how much she has invested.

But please tell her about the book so she can get the info direct from an expert too, rather than third hand advice that's also been translated to English and back

I will indeed recommend that book. Thanks for the tip!
I don't think she has that much invested in her current fund....less than 200,000 yen, I think.
68,000 yen per month is a decent allowance! I wish I had that much available to me!

[Haystack]

If she's self-employed and paying Kokumin Nenkin it'll be ¥68,000 a month. Depends what kind of pension she has. Can't invest a lump sum.

Cash out + drip feed works. But it might be better to sell them off monthly, depending how much she has invested.

But please tell her about the book so she can get the info direct from an expert too, rather than third hand advice that's also been translated to English and back

I will indeed recommend that book. Thanks for the tip!
I don't think she has that much invested in her current fund....less than 200,000 yen, I think.
68,000 yen per month is a decent allowance! I wish I had that much available to me!

Upon retirement those who are self-employed only get base nenkin, about 6万 max.

One can choose to do iDeco or chose to opt into the full pension scheme.

Perhaps that could be a better option for your friend if she is extremely risk adverse.

[RetireJapan]

One can choose to do iDeco or chose to opt into the full pension scheme.

Not sure what you mean here. If someone is self-employed, their only option is to pay kokumin nenkin and then use one of the supplementary schemes (like iDeCo or kokumin nenkin kikin).

The only way to get kosei nenkin is to incorporate or work for an employer.