What Types of Investment Accounts Are Available in Japan?

Broadly speaking, there are three different kinds of investment accounts in Japan that are open to all investors. These are the NISA, iDeCo, and a general brokerage account. As a resident of Japan, you are able to open all of them at the same time, so you can make the most advantage out of your contributions.

NISA: Japan's Tax-Free Investment Account

The Nippon Individual Savings Account (NISA) is perhaps the most attractive investment vehicle available in Japan. The main benefit is that your investment gains are completely tax-free inside this account. This is particularly valuable given that regular investment gains in Japan are taxed at 20.315%.

The account is split in to two "courses", and you are able to contribute to both at the same time. They have slightly different investment options and contribution limits available inside of them, but are both equally tax-free for life.

Regular Investment Course (つみたて投資枠):

Limited to low-cost index funds and certain ETFs and designed for long-term, steady investment strategies. An annual contribution limit of ¥1.2 million.

This course is limited to an investment of ¥100,000 per month, and has a total lifetime limit of ¥6 million in contributions. For some brokerages, you can also invest this money with your credit card and earn points as well!

Growth Investment Course (成長投資枠):

Offers a much wider range of investment options, as well as low-cost index funds. An annual contribution limit of ¥2.4 million.

Unlike the regular course, contributions can be made at any time to the growth course. The lifetime limit is ¥12 million in contributions.

A Practical Example

The tax benefits might be self-apparent, but it's helpful to see how much of a difference investing inside your NISA can make. On a hypothetical investment of ¥1.2 million growing at 7% every year, the NISA has a significantly higher return due to not having to pay the roughly 20% tax on dividends and capital gains.

iDeCo: Japan's Tax-Deductible Retirement Account

Individual-type Defined Contribution pension plans (iDeCo) offer a different type of tax advantage. While NISA provides tax-free growth, iDeCo offers immediate tax deductions on your contributions, tax-deferred growth, and potential tax advantages when withdrawing funds in retirement.

The amount you can contribute to iDeCo depends on your employment status. You can check out our iDeCo contribution limit calculator to get an idea of how much you can contribute.

The real power of iDeCo lies in its triple tax advantage:

1. Contributions are tax-deductible, reducing your current year's taxable income
2. Investment gains grow tax-deferred
3. Withdrawals in retirement qualify for preferential tax treatment

However, iDeCo comes with significant restrictions. You generally can't access the money until age 60, and investment options are more limited than with NISA. The account also requires monthly fees (typically ¥200-500) and offers a more restricted range of investment options compared to NISA or regular brokerage accounts.

Specified Brokerage Accounts

While tax-advantaged accounts like NISA and iDeCo are attractive, specified brokerage accounts (特定口座, Tokutei Kōza) still play an important role in a complete investment strategy. These accounts offer:

• No contribution limits
• Complete flexibility in buying and selling
• Access to a wider range of investment products
• No age restrictions or lockup periods

Generally you would only need to open one of these accounts once you have reached your contribution limit for both NISA and iDeCo, or have a need to invest in products that aren't available in either of those accounts.