Japan's New NISA Simulated: Using the Tax-Free Allowance and the Gap With a Taxable Account
Japan's new NISA is a system that takes tax off your investment gains. Still, how much better it is than a taxable account, and how many years a given monthly amount takes to fill the allowance, is hard to feel until you see it in yen. This article sets out how the NISA allowances work, then gives concrete figures for how long the 18 million yen lifetime limit takes to fill and how much more you keep than in a taxable account.
The new NISA's tax-free allowances
The new NISA, which started in 2024, has two allowances, the Tsumitate Investment Frame (for regular savings) and the Growth Investment Frame, and you can use both in the same year. Their sizes are as follows.
| Tsumitate Investment Frame | Growth Investment Frame | |
|---|---|---|
| Annual investment limit | 1.2 million yen (100,000 yen a month) | 2.4 million yen |
| Annual total | 3.6 million yen | 3.6 million yen |
| Lifetime tax-free holding limit | 18 million yen (both frames combined) | Up to 12 million yen of that |
| What you can buy | Investment trusts meeting Financial Services Agency criteria (for long-term, regular, diversified investing) | Listed shares, investment trusts and so on (with some exclusions) |
| Tax-free period | Indefinite | Indefinite |
The 18 million yen lifetime limit counts the amount you paid (the principal), not the market value. If what you bought for 18 million yen grows to 30 million yen, you've still used 18 million yen, and the 12 million yen of growth isn't taxed either. And when you sell, the principal of what you sold becomes available again the following year.
How many years the 18 million yen lifetime limit takes to fill
Here's how long each monthly amount takes to fill the 18 million yen lifetime limit, with the market value at that point (calculated at 5% a year).
| Monthly amount | Time to fill the limit | Value at that point (5% a year) | Frame used |
|---|---|---|---|
| 30,000 yen | 50 years | About 80.06 million yen | Tsumitate Investment Frame alone is enough |
| 50,000 yen | 30 years | About 41.61 million yen | Tsumitate Investment Frame alone is enough |
| 100,000 yen | 15 years | About 26.73 million yen | Tsumitate Investment Frame's upper limit |
| 150,000 yen | 10 years | About 23.29 million yen | Anything above 100,000 yen a month goes in the Growth Investment Frame |
| 300,000 yen | 5 years | About 20.40 million yen | The 3.6 million yen annual limit (the fastest possible) |
Using the Tsumitate Investment Frame alone, the fastest way to fill the limit is 100,000 yen a month for 15 years. At 30,000 yen a month it takes 50 years, so for most people the question isn't whether they can use up the lifetime limit but how far they can get. The sooner you fill it, the longer your money compounds tax-free, but don't invest your emergency fund to get there.
How much more you keep than in a taxable account
In a taxable account (a specified or general account), gains are taxed at 20.315% (15% income tax, 0.315% special reconstruction income tax and 5% resident tax). This comparison assumes 30,000 yen a month at 5% a year, all sold at the end.
| Period | Value | Gain | Tax in a taxable account | Received from a taxable account |
|---|---|---|---|---|
| 10 years | 4,658,468 yen | 1,058,468 yen | 215,028 yen | 4,443,441 yen |
| 20 years | 12,331,010 yen | 5,131,010 yen | 1,042,365 yen | 11,288,645 yen |
| 30 years | 24,967,759 yen | 14,167,759 yen | 2,878,180 yen | 22,089,579 yen |
With NISA you receive the full value, so the tax column is exactly what NISA saves you: about 220,000 yen at 10 years, and about 2.88 million yen at 30 years. The longer the period, the bigger the gain, and the bigger the tax-free benefit.
With other conditions, the tax difference is about 350,000 yen for 10,000 yen a month at 5% for 20 years, and about 4.8 million yen for 50,000 yen a month at 5% for 30 years. On the other hand, if there's no gain, a taxable account charges no tax either, so NISA makes no difference.
After you've invested the full amount
Investing 100,000 yen a month for 15 years fills the limit, and at 5% a year that's about 26.73 million yen. After that you can't buy more, but the money keeps growing tax-free. Here's what it comes to if you just leave it alone (calculated at 5% a year).
| Years after contributions end | Value | Gain | Tax a taxable account would take |
|---|---|---|---|
| 0 years (when contributions end) | 26,728,894 yen | 8,728,894 yen | 1,773,275 yen |
| 5 years later | 34,302,759 yen | 16,302,759 yen | 3,311,905 yen |
| 10 years later | 44,022,743 yen | 26,022,743 yen | 5,286,520 yen |
| 15 years later | 56,496,969 yen | 38,496,969 yen | 7,820,659 yen |
Compounding continues after contributions end, so the tax-free benefit is actually larger after that point. Once the limit is full, you can choose to keep investing in a taxable account or to put the money toward living costs or housing.
What to watch for with the new NISA
- Losses can't be combined with other accounts: losses in NISA can't be offset against gains in a taxable account or carried forward to later years.
- The annual allowance doesn't roll over: anything you don't use that year is gone. The 18 million yen lifetime limit, though, can take as many years to fill as you like.
- One account per person: you can change financial institutions from year to year, but you can't hold NISA accounts at two institutions in the same year.
- Age 18 and over: it's open to residents of Japan who are 18 or older as of January 1.
- It's separate from iDeCo: iDeCo contributions are deductible from income, but you generally can't withdraw until 60. The difference between income tax and resident tax covers how that tax reduction works.
Check the allowance and tax gap for your own amount
- 1
Enter your amount, return and period
In the "Build by saving" tab of the Savings & Compound Interest Simulator, enter your monthly amount, initial investment, expected return and period.
- 2
Compare what you'd receive from NISA and a taxable account
Below the value, you'll see what you'd receive from NISA (tax-free) next to what you'd receive from a taxable account after 20.315% on the gain.
- 3
Check that it fits the allowance
It shows whether your monthly amount fits the Tsumitate Investment Frame (100,000 yen a month), whether you stay within 3.6 million yen a year and 18 million yen for life, and how many years your current pace takes to fill the lifetime limit.
The savings simulation table shows future amounts by monthly contribution, and how compound interest works explains why tax-free growth matters.
FAQ
- What are the new NISA's tax-free limits?
- The Tsumitate Investment Frame is 1.2 million yen a year (100,000 yen a month) and the Growth Investment Frame is 2.4 million yen a year, for a total of 3.6 million yen a year. The lifetime limit for tax-free holdings is 18 million yen of principal, of which up to 12 million yen can be in the Growth Investment Frame.
- How much do I get from 100,000 yen a month in the new NISA?
- You fill the 18 million yen lifetime limit in 15 years, and at 5% a year that's about 26.73 million yen. The gain of about 8.73 million yen is tax-free, so you receive about 1.77 million yen more than from a taxable account. Leave it for another 10 years without adding to it and, at 5% a year, it comes to about 44.02 million yen.
- How much tax does NISA save compared with a taxable account?
- A taxable account charges 20.315% on gains. Investing 30,000 yen a month at 5% a year, the tax difference is about 220,000 yen at 10 years, about 1.04 million yen at 20 years and about 2.88 million yen at 30 years. The bigger the gain, the wider the gap.
- Does the new NISA allowance come back when I sell?
- Yes. The purchase cost (principal) of what you sold becomes available in your lifetime limit the following year. The annual investment limit (3.6 million yen) doesn't change, though, so you can't necessarily reuse the freed-up amount all at once.
- How should I choose between the Tsumitate and Growth Investment Frames?
- If your monthly amount is within 100,000 yen, the Tsumitate Investment Frame alone is enough. Use the Growth Investment Frame if you want to invest more than 100,000 yen a month or buy individual shares or ETFs. You can also invest regularly in investment trusts through the Growth Investment Frame, so you can invest in the same trust through both.
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