What Happens to iDeCo and NISA in Inheritance—New Issues in the Investment Era

A new question for an era where "investing seniors" have become the norm

Since the start of the new NISA, asset management has become much more accessible. It is no longer rare for people in their 60s and 70s to utilize NISA or iDeCo.

This gives rise to a new question that did not exist in traditional inheritance.

"What happens to my NISA when I die?"

In conclusion, neither NISA nor iDeCo accounts can be inherited by family members as they are. Each changes into inherited property according to its own unique rules. This article organizes those mechanisms and the "exit strategy" that the investing generation should consider.

NISA Inheritance — Tax Exemption is "One Generation Only"

First, the fundamental principle of NISA inheritance.

The tax-exempt benefits of NISA end upon the death of the account holder. Heirs cannot take over the account itself, nor can they transfer the contents into their own NISA accounts.

The inheritance process is as follows.

It is important to note that the transfer destination is the heir's "taxable account." Even if the heir has their own NISA account, the assets cannot be moved there. Additionally, since the transfer must be performed at the same financial institution as the decedent, if the heir only uses a different brokerage firm, they will need to open an account at the same financial institution.

Surprisingly little known — "Unrealized gains up to the date of death" are tax-exempt

Here, I would like to address a point that many people misunderstand.

"Won't the gains made in NISA eventually be taxed at 20% upon inheritance?"—Actually, that is not the case.

Unrealized gains up to the date of death are finalized tax-free.

The mechanism is as follows. When transferred to an heir, the acquisition cost is reset to the "market value on the date of death." For example—

• An investment trust purchased by the decedent for 700,000 yen has grown to 1 million yen on the date of death

• The 300,000 yen in unrealized gains up to the date of death is not taxed

• The heir's acquisition cost is 1 million yen. If they sell it later for 1.2 million yen, only the 200,000 yen increase after inheritance is taxed (at a rate of 20.315%)

In other words, the design is such that "pre-death investment gains are finalized tax-free, and taxation restarts from any increase after inheritance." The tax-exempt benefits of NISA are fully utilized right up until the moment of death.

(Note that conversely, even if there are unrealized losses on the date of death, they are treated as non-existent for tax purposes and cannot be offset against other gains or losses. Also, NISA assets themselves are subject to inheritance tax and are valued at the market price on the date the inheritance begins.)

iDeCo Inheritance: As a 'Death Benefit,' It Has the Same Tax-Exempt Allowance as Insurance

iDeCo follows a completely different path than NISA.

When a participant passes away, their iDeCo assets are paid to their survivors as a death benefit. For tax purposes, this is considered deemed inherited property—and this is important—it qualifies for the same tax-exempt allowance as life insurance death benefits: 5 million yen multiplied by the number of statutory heirs (the allowance for retirement allowances, etc.).

You can use this tax-exempt allowance separately from the life insurance allowance—iDeCo is surprisingly favorable in inheritance scenarios. However, because it is only paid out if the survivors file a claim, there is a risk that the assets will remain unclaimed if the family is unaware that the deceased had an iDeCo account. Recording this in an ending note is essential.

The Main Topic: Thinking Separately About the 'Growth Phase' and the 'Preservation Phase'

Beyond understanding the systems, this is the perspective I most want to convey as inheritance planning for the investing generation.

Asset management has a 'growth phase' and a 'preservation phase.' At some point, you need to make a decision to change where your assets are held.

NISA tax exemptions are limited to one generation. How is it best to pass on the assets you grew in your lifetime to the next generation? As you age, the purpose of your investments shifts from 'growing' to 'preserving.' These are your options at that time.

The point is that 'continuing to grow assets in your own NISA' is not always the optimal strategy forever. If you are looking toward inheritance, the new inheritance strategy in the investment era is to lock in profits at some point and relay those assets to tax-exempt vehicles (insurance) or the next generation's tax-exempt accounts (your children's NISA).

Of course, the right timing is different for everyone. By keeping an eye on your health, the proportion of your total assets that are invested, and your projected inheritance tax, simply being conscious of 'when to stop the growth phase' will significantly improve the quality of your preparation.

Make Your Investment Assets 'Visible'

Finally, some practical preparation. NISA and iDeCo are typical assets that are managed entirely online and are difficult for family members to notice.

• Write down which financial institutions hold your NISA, iDeCo, and taxable accounts.

• Inform your family that iDeCo requires a 'claim for death benefits' to be filed.

• Do not write down login credentials directly; instead, leave hints about where they are stored.

Summary: How to Pass the 'Baton' of Tax Exemption

• NISA accounts cannot be inherited as-is. They must be transferred to the heir's taxable account (at the same financial institution).

• However, unrealized gains up to the date of death are tax-exempt. The acquisition cost is reset to the market value at the time of death.

• iDeCo death benefits are considered deemed inherited property. They qualify for a tax-exempt allowance of 5 million yen multiplied by the number of statutory heirs (separate from the insurance allowance).

• From the 'growth phase' to the 'preservation phase'—relay your assets through profit-taking, insurance, and lifetime gifting.

Pass on the assets you have built through investment to the next generation with minimal loss from taxes and administrative hassle—let's think together about a plan that connects investment with inheritance.

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*Inheritance procedures and tax implications for NISA and iDeCo vary depending on the financial institution, method of receipt, and individual circumstances. This column is not a solicitation for insurance products or similar, but provides general information regarding the systems. Please consult with a tax accountant or other professional for specific decisions.

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