“I want to build retirement savings, but I also want to minimize taxes.”
For those seeking this, the most recommended system is iDeCo (Individual-Type Defined Contribution Pension).
iDeCo isn’t just a savings investment; it’s also the most powerful tax-saving tool recognized by the government.
This article clearly explains iDeCo’s three tax-saving benefits and provides specific tax-saving simulations based on annual income.
1. Three Reasons Why iDeCo is “Powerful for Tax Savings”
iDeCo offers three tiers of powerful tax incentives not found in other investment systems (like the new NISA).
① Contributions are “Fully Deductible from Income”
The biggest advantage is that your entire monthly contribution is deducted from your income.
This directly reduces your annual income tax and resident tax.
② Investment Gains Are “Tax-Free” and Reinvested
Typically, investment gains are taxed at about 20%. With iDeCo, however, no tax is levied on these gains.
The portion that would normally be taxed is instead reinvested, maximizing the compounding effect.
③ Significant deductions apply at withdrawal
When you withdraw accumulated funds, they qualify for the “public pension deduction” and “retirement income deduction.”
This allows you to access your retirement savings while minimizing your tax burden.
2. How much can you save? Tax savings simulation by annual income
Here’s an estimate of annual tax savings from using iDeCo, broken down by income level and contribution amount.
| annual income | Monthly premium | Annual Tax Savings (Estimated) | If continued for 20 years |
| 4 million yen | ¥12,000 | Approximately 22,000 yen | Approximately 440,000 yen |
| 6 million yen | ¥23,000 | Approximately 82,000 yen | Approximately 1.64 million yen |
| 8 million yen | ¥23,000 | Approximately ¥110,000 | Approximately 2.2 million yen |
Key point: A key feature of iDeCo is that the higher your income tax rate (i.e., the higher your annual income), the larger your refund amount will be.
3. Important Considerations Before Starting iDeCo
While iDeCo offers significant benefits, the following two points require careful attention.
- Funds cannot be withdrawn until age 60 as a general rule.
As this is a system dedicated to retirement funds, manage it separately from funds for unexpected expenses (living expense reserves). - Fees apply.
Fees are incurred upon enrollment and for monthly account management.
While the tax savings usually exceed the fees, cost awareness is important for very small contributions (e.g., ¥5,000).
Summary: The earlier you start iDeCo, the more you save
The tax savings benefits of iDeCo grow more significant the longer you contribute.
If you’re thinking, “I want to save for retirement wisely while reducing my tax burden,” starting with even a small amount is the right move.
