What should I do with 3.5M yen?

[nafis4268]

I'm 32-ys-o, not a Japanese or American. I'm currently working in Japan and plan to stay here for the next 5 years, I still have a wait-and-see attitude towards to PR/Naturalization.

My parents want to give me some extra money (about 3.5M yen) to manage, and I feel a little bit uncertain about how to use it.

Here are some details about my finiancial situation:

• My salary covers my living expenses, with a small surplus.
• I have a small savings, which should be able to support my living expensese for 3-4 months without job.

I have few ideas about how to use this extra money:

• Since I don't plan to retire in Japan, I think I can skip the iDeCo?
• Use my monthly surplus to fill the TSUMITATE NISA quota.
• 2.4M goes to the NISA Growth Quota.
• Should the remaining 1.1M be put into a fixed-term deposit in USD?

I am really clueless in this. May I know your thoughts？ Any suggestions would be helpful!

Thanks in advance.

 

[lishacccc]

@nafis4268 You don't need to know where you're going to retire in order to start saving for retirement.

You don't need to retire in Japan for Japan's tax-advantaged retirement accounts to be attractive.

No matter where you work and where you live, you'll need significant investments in order to afford a comfortable retirement. The sooner you start, the better. The right thing to do doesn't really change based on where you live — you want to use tax-advantaged accounts (like iDeCo and NISA and any equivalents in your home country), and you want to use those accounts to buy low-fee globally-diversified index funds.

Start with iDeCo, which has the strongest tax advantage. You make contributions monthly; it's about ¥25,000/month (I forget exactly).

Then fill NISA, which you can do with a lump sum each year.

 

[nafis4268]

@lishacccc Thanks for the reply!

Do you mean simply using ideco as a way to save tax? But if I'm leaving Japan in 5 years, then ideco seems like it will become a hassle for me ......

 

[manishk012]

@nafis4268 Have you been a resident in Japan for more than 5 years 10 years? If yes, you’ll have to pay gift tax on that money which will suck.

If not, park it in a NISA growth and tsumitate.

You can’t add a lump sum to an iDeCo so that’s moot.

 

[rogueebear]

@manishk012

Have you been a resident in Japan for more than 5 years? If yes, you’ll have to pay gift tax on that money which will suck.

I recall You’ve made this mistake before… for table 1 visa holders, Tax on Overseas gifts and overseas inheritance doesn’t apply until 10 years (of the last 15 years) OR if they are a table 2 visa holder then it applies from the moment they have a table 2 visa.

You’re mistaking the “unlimited/limited tax payer” status with the “NPR/PTR tax payer” status

 

[manishk012]

@rogueebear AAAARRRGGHH!!

Why do they make it sooooo complicated?!?!!? Why can’t it be the same duration for both income and inheritance. I ALWAYS get it wrong

What trips me is that I got a big gift from my parents 10 years ago and at that time the law was different and it was 5 years.

Sorry OP, my bad…

 

[rogueebear]

@manishk012 That’s ok. easy mistake to make. Many people seem to make the mistake too, so you’re not alone.

I guess the easiest way to think about it is that gifts/inheritance are a separate form of taxation to income tax (in the context of NPR, “foreign sourced income”) I.e when you file a gift/inheritance tax return, it’s completely separate to your income tax return.

So the just think of it as one rule for income tax, and another rule for gift/inheritance tax

What trips me is that I got a big gift from my parents 10 years ago and at that time the law was different and it was 5 years.

Didn’t know it used to be 5 years?

 

[nafis4268]

@rogueebear Oops, I was outside and have replied to wrong person. Anyway, Thanks for the correction. Any thoughts on the investment part maybe?

 

[nafis4268]

@manishk012 whaaaat!? I don't know how it counts, but I was a student in for 4 years, and this is my third year working in Japan.

However, the money itself is not going to transfer to my Japan account directly, but to my bank account in homeland. Then I will transfer it from my homeland account to my Japan account. (This simply because my parents don't want to do the whole go to bank chores.) Is this still considered a gift in tax purposes?

 

[manishk012]

@nafis4268 Yup. Even if it’s never remitted to Japan, it still counts as a gift.

Edit: sorry, made a mistake on the duration. You’re in the clear. But still, the way the money is transferred doesn’t change the applicability of the tax if it had been applicable.

 

[nafis4268]

@manishk012 Thank you for the reminding. I will try to figure out how to work, probably just pay the tax...that's the easy way.

and thanks for the NISA advise.

 

[manishk012]

@nafis4268 Please re-read the replies, I made a mistake and edited my comments.

 

[nafis4268]

@manishk012 Yes, I read it. Thank you both about the information!

 

[jewelpet]

@nafis4268 put it into nisa on index funds, monthly contributions via cc and you get some points too. 300k a month so you max out this year limit almost with that.

and yes nisa has now tsumitate and growth portion but you can setup monthly contribution on both of them and there we get 300k a month

 

[nafis4268]

@jewelpet Wow! Clever! I hadn't thought about credit card points or anything like that ...... I'll keep that in mind!

 

[jewelpet]

@nafis4268 it is relatively insignificant amount by the end of the day. But might as well collect the free money if such is offered. I think that is the carrot many brokerage in Japan offers to get people into investing.

 

[eterna]

@nafis4268 Advice would depend on what you intend to use the money for.

As an example, if this is for long term retirement, and you plan to retire in your home country, a tax advantaged account there makes the most sense. Because you will let it grow until you retire there.

If it is for shorter term, such as deposit on housing purchase, where would that be ? Will you be at that location then ?

If you put it in nisa - a strong option imho -, will it have time to grow ? You do not want to leave when it is in the red and solidify your losses. It take 5-10 years for accumulated gains to put you mostly out of drop risks (such as 20/30% drops).

In any case you're probably right to invest the money unless you have identified short term needs.

 

[nafis4268]

@eterna Thank you for your thoughtful response.

I don't plan to use this money for retirement funds or buying a house because I haven't decided where I want to retire or settle down. While people around my age prefer to buy houses, I personally don't like the lifestyle tied to mortgage and property tax.

If you put it in nisa - a strong option imho -, will it have time to grow ?

A very inspiring insight! I haven't thought about the NISA from this angle. Maybe because I haven't focused on my investment portfolio yet... everything is still in the planning stage. I'm a bit lazy... haven't done enough homework...

But I think I'll probably stay in Japan for at least another 5 years. Even if there isn't much profit, there shouldn't be a significant risk either.

Also, after using up the annual limit of NISA, I should still have some spare change, around 500k to 700k yen. I really don't want to leave it in a Japanese bank, although the news says that Japanese banks are going to raise interest rates... Do you have any advice on that part?

 

[eterna]

@nafis4268 First, no worries about not having done the homework, it is far from too late, everybody in this sub wakes up at some point.

In any case, you need to clarify what that money will be for. If not for retirement, not for hose, not for short term needs, what do you plan to use it for ? Have you even done a long term financial plan ?

There is nothing wrong not wanting to buy a house, but having no financial plan is not a good foundation. How will you fund your retirement for example ?

I think you need to spend some time in personal finance / fire / boglehead subs and have a basic idea of your finance plan first. Then here we can discuss how to make the investment happen in Japan or outside depending on your living plan or uncertainties.

 

[nafis4268]

@eterna To be honest, my parents gave me this money with the intention that I should use it to settle down in Japan, buy a house, and plan for retirement, among other things. Although they didn't explicitly express these intentions.

I feel it's a bit early to make plans for these things at this point. I would prefer to experience life in a different country five years from now, and perhaps consider retirement planning around the age of 40. So if you ask me about the purpose of this money, my most honest answer is that I hope it becomes the starting fund for my move to another country in five years.

I understand the typical financial planning, step1, clearing debts (if you have ongoing debt/load); step 2, build an emergency fund; step3, plan for retirement; step 4, house/investment; step 5, children etc.

I'm not a person who spends extravagantly in daily life, and I never carry credit card debt. I have already build an emergency fund that should be able to cover my expenses for 3-4 month (maybe I should put more money in it? ). And for various reasons, child is not a part in my life plan.

So, buying a house/retirement is not an immediate priority for me. Honestly, I find it difficult to imagine what retirement life would be like. If my health conditions allow, I hope to work until I die. I admit this may sound too Asian...

From my personal experience, people find it pitiable to work until death because they didn't find a career worth loving throughout their youth. My biggest wish now is to find and engage in a career that I am passionate about.

This is also why I plan to leave Japan in five years to pursue a Ph.D. However, becoming a Ph.D student means I won't be able to work full-time for 3 to 5 years. Although I am likely to find a scholarship and part-time work, it won't compare to the income I currently earn in my full-time job. If possible, I hope this money and its returns can fill this income gap.

Perhaps these "plans" may seem too naive or risky to you... but I know that with or without this money, I will move in this direction...