A new option
Last August I wrote about the new NISA proposals. A few things have changed since then, and the 積立 (tsumitate, or regular saving) NISA is starting next January. Let's take a look at what it is and who might want to use it.
First of all, regular NISA and Junior NISA accounts will not change. The 積立 NISA is a new option that will be available alongside regular NISA accounts. You will be able to choose between a regular or 積立 NISA account each year.
The new option seems to have been introduced to make NISA a bit easier to understand and encourage more people to invest.
The new NISA option allows you to invest less, in fewer products, for much longer. It also makes it easy to set up regular monthly investments (hence the name).
So it seems the new account is a bit of a fudge. I would have much preferred for the government to extend the duration of the normal NISA account (or make it indefinite, like the UK one). Clearly the tax office wasn't willing to do this and we are left with two flawed options.
So who should use the new NISA account?
If you are only able to invest up to around 500,000 yen a year, then the new NISA is clearly a better option. The restriction to mutual funds shouldn't be too much of a burden as long as you choose a provider that offers a range of no-fee funds. The longer duration will allow your investments to grow tax-free much more.
If you are already able to max out a normal NISA (1.2 million a year), then I am not sure which is the better option.
If you max out normal NISA accounts and always put in new money, then after five years you should have 6 million yen invested tax-free.
Switching to the 積立 NISA and maxing that out would result in 8 million yen invested tax free, but it would take you sixteen years to invest more than you could in the normal NISA accounts.
Personally I find maxing out the NISA is a good goal for me, and one that helps me invest as much as possible.
I think I will continue using normal NISA accounts and continue hoping that the government will increase the contribution limits and the tax-free duration.
How about you? Which NISA account do you think you will use next year?