Hands-off Investing | What is iDeCo? A Super Simple Explanation for Beginners

"What should I do about money for my old age?" Have you ever felt that kind of anxiety?

"Maybe I won't be able to live on my pension alone..." "I want to save money, but I don't know where or how to deposit it."

For those of you who feel this way, I want you to know about a system called iDeCo.

I myself lived a life unrelated to investing or asset building until my late 20s. But one day, I started thinking seriously, "What should I do to live with peace of mind in the future?" and that was when I first encountered iDeCo.

When I looked into it, I realized it was a system full of benefits, such as being able to save on taxes, increase retirement funds, and even having a surprisingly simple way to get started.

In this article, I will explain:

• What kind of system is iDeCo?

• How do you start it?

• What are the benefits and points to note?

I will explain these as clearly, gently, and concretely as possible.

If you want to start building assets, please start with this article first 📘

What is iDeCo?

iDeCo (Individual-type Defined Contribution pension) is a system for preparing future retirement funds, where you can choose your own financial products and accumulate savings.

To summarize its features in one phrase:

In modern times, when public pensions alone are not enough, iDeCo is attracting attention as "another pension."

Because it is established as a national system, it is highly reliable, and many companies and financial institutions are participating.

Three major benefits of iDeCo

iDeCo has a "three-stage tax saving benefit" that other investment systems do not have.

① Contributions are fully tax-deductible!

The monthly contributions you pay are directly eligible for income tax deductions. In other words, your taxable income decreases, reducing your income tax and resident tax.

✔ For example, if you have an annual income of 5 million yen and contribute 23,000 yen per month, the annual tax reduction effect can be as much as 40,000 to 50,000 yen!

② Investment gains are tax-free!

Normally, profits earned from stocks or investment trusts are subject to about 20% tax, but with iDeCo, those profits are completely tax-free.

In other words, you can receive your investment results in full while maximizing the effects of compound interest.

③ You can also use deductions when withdrawing!

When withdrawing, you can use the **"Retirement Income Deduction"or"Public Pension Deduction"**. In other words, depending on how you withdraw, you may end up paying almost no tax.

You can see that it is a system that allows you to efficiently prepare the money you need for your old age.

Who can use it? Points regarding age limits and occupations

iDeCo is available to everyone aged 20 to under 60. However, the contribution limit varies depending on your occupation.

※ These are the limits as of 2024.

As a point of caution, you cannot make new contributions after age 60. Also, as a general rule, you cannot withdraw funds until age 60, so the key is to avoid using money that you might need along the way.

How do you start? 3 steps to begin iDeCo

Step ① Choose a financial institution

You can open an account at securities companies, banks, or insurance companies.

• Low fees

• Wide range of products

• Compare support systems and choose accordingly.

Recommended examples: SBI Securities, Rakuten Securities, Matsui Securities, etc.

Step ② Open an account & submit required documents

You can request the application form online, fill it out, and mail it back.

What you need:

• Identity verification documents

• Basic Pension Number

Depending on your employer, you may also need a 'Certificate of Employer'.

Step 3: Choose your products and start investing!

Select investment products from options such as investment trusts, fixed deposits, and insurance products.

Key points:

• 'Balanced' and 'Index' type products suitable for long-term investment are popular

• The basic rule is to choose products with low fees

Who is it for? A check by iDeCo usage type

Those who fit the following criteria are especially likely to benefit from iDeCo👇

• People with a stable income who pay income tax and resident tax

• People who have savings but are also interested in future investment

• People who want to secure retirement funds but are new to investing

Conversely, those who fall into the following categories need to make a careful decision.

• People who only have money that they might need to use soon

• People with low income who would receive little benefit from tax savings anyway

Make sure you also fully understand the points to note about iDeCo

Every system has its downsides. Before starting iDeCo, make sure you fully understand the following points.

❗Cannot be withdrawn until age 60

→ The inability to cash out midway is the biggest constraint. Think of it separately from your emergency fund.

❗Fees apply

→ Initial costs and account management fees will be incurred. Choose a low-cost financial institution.

❗Investment is at your own risk

→ Since it does not guarantee the principal, how you choose your investment products is important.

Summary: iDeCo is a "future pension you can choose yourself"

iDeCo is a highly advantageous system that allows you to prepare for the future while maximizing tax benefits.

• High tax-saving effects,

• flexible investment options,

• and the ability to build your own future pension,

make it the perfect first step for asset formation.

You can start with a small amount, so the most important thing is to just get started.

👉 Why not consider iDeCo as a gift to your 'future self'?

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(This article was created based on 'AI.' Please note that it may contain errors or inaccurate information.)

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