Is it worth it?
I had an interesting question from a reader last week. They drew my attention to the online iDeCo tax savings calculator, which seemed to show that dependent spouses could save significantly on income tax.
Check it out here. Choose 専業主婦, then Yes, then input your numbers, then you can see the amount they calculate you will save on tax. It comes to about 40,000 yen a year if you contribute the maximum 23,000 yen a month to iDeCo, for a 'return' of about 15%.
Okay, maybe that is not particularly significant (if your income is high enough, your tax saving is equivalent to a 55% return, so iDeCo makes more sense the higher your tax rate is).
I was still puzzled though. I thought dependent spouses couldn't make more than a certain amount in salary in order to remain a dependent spouse. This low salary means they shouldn't be paying much income tax, if any.
This article provided a bit more information. Here are some of the more important points:
- Income under 1,030,000 yen a year is not subject to income tax.
- People making more than 1,060,000 yen a year (some companies) or 1.3m yen a year (everyone else) cannot be dependent spouses for pension/health insurance. This is necessary in order to pay into iDeCo as a dependent spouse (第3号被保険者).
- Income tax starts at 5% (+10% local inhabitant tax) on amounts over 1,030,000 yen a year.
So the tax savings according to the calculator seem impossible. I am guessing that whoever designed it didn't take the complete picture into account. The fact that you can move the income 'slider' up to 50m yen as a dependent spouse definitely shows that :)
It would appear that there may be slight income tax advantages to enrolling in iDeCo as a dependent spouse, but they will probably be nonexistent for many people, and insignificant for almost everyone.
So is iDeCo useless for dependent spouses? I don't think so.
iDeCo has two main benefits for dependent spouses. It allows them to save for retirement in their own name and to invest tax-free over the long term. It is not as beneficial as it would be for someone who pays more income tax, but it's still a fairly decent option.
What do you think? Is iDeCo worth it for dependent spouses?