How does the deterioration of the pension tax system affect?

A tax policy outline has been released.

Although various things are written, the most impactful point for me personally was the change of the 5-year rule for retirement income deduction to a 10-year rule.

Since not many people may know about this, I will explain it briefly.

First, the retirement income deduction is a 'deduction that can be applied to retirement-related benefits'.

Specifically, it can be applied to 'retirement benefits received from the company', 'lump sum iDeCo benefits', and 'small business mutual aid benefits'.

However, it is not possible to apply it to each of them at any time and as many times as you want.

If you want to apply the retirement income deduction to the lump sum iDeCo benefits after receiving retirement benefits from the company, you need to wait 20 years.

For example, if you receive retirement benefits at the age of 60, you would need to wait until you're 80 to apply the retirement income deduction to the iDeCo lump sum benefits.

However, since iDeCo can only be withdrawn up to the age of 75, you need to adjust the timing of receiving retirement benefits to 55.

If you reverse the order and receive iDeCo first, it would have been better to receive it in 5 years instead of 20 years until you can use the retirement income deduction at the time of retirement.

This is what is called the "5-year rule".

By receiving the lump sum payment from iDeCo at the age of 60 and then receiving retirement benefits from the company at the age of 65, it was possible to use the retirement income deduction twice.

Many employees with iDeCo plans may have viewed this scheme as part of their retirement exit strategy.

In this tax reform, it has now become the "10-year rule".

If you receive the lump sum from iDeCo at the age of 60, you must set the retirement age to 70 years in order to use the retirement income deduction again.

Since retirement benefits are part of the company's system, it may not be possible to set the time for receiving them so flexibly, and there is no guarantee that you will be employed until the age of 70.

Using the retirement income deduction twice has become extremely difficult.

By the way, replacing the lump sum retirement allowance with the mutual aid money of small-scale enterprise mutual aid is the same.

As a sole proprietor who participates in both iDeCo and small-scale enterprise mutual aid, my scenario was to receive the iDeCo lump sum at 65 and the mutual aid money from the small-scale enterprise mutual aid at 70.

With this system change, this scenario will be changed involuntarily.

Since I am not employed by a company, I am not bound by company circumstances, but well, what should I do about this situation?

Moreover, although it was postponed this time, the direction of revising the amount of retirement income deduction is likely to be reconsidered.

Currently, up to 20 years of service will add 0.4 million yen annually, and once it exceeds that, the years spent at 0.7 million yen annually are added as retirement income deduction.

If you work for 30 years, it will be 0.4 million yen × 20 years + 0.7 million yen × 10 years = 15 million yen.

It is said that this might change to a constant 0.4 million yen.

In that case, 0.4 million yen × 30 years = 12 million yen, which means a deduction of 3 million yen.

Also, there is a more beneficial 'half rule' for retirement income deductions, where half of the amount obtained by subtracting the retirement income deduction from the retirement income becomes the taxable income.

For example, if the retirement allowance is 20 million yen, then in the previous example, (20 million yen - 15 million yen) ÷ 2 = 2.5 million yen becomes the taxable standard amount.

It's significantly reduced, isn't it?

There seems to be talk of abolishing this 'half rule'.

Since I, who is currently 42 years old, have more than 20 years until receiving funds from iDeCo or small business mutual aid, I think the tax system in this area will start changing.

Hmm, maybe changing the timing of receiving the iDeCo lump sum to start from 60 years old instead of 65 years old.

Increasing contributions to iDeCo and tightening the taxation at the exit seems quite harsh, it's kind of a tough move (crying).

I might decrease the contribution amount for my iDeCo a bit.

Oh, I'm in trouble.

Although the basic strategy remains the same - working hard, cherishing the present, and investing as much as possible.

So, I decided to write about something that doesn't seem to be touched on by many people.

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