This article explains Japan’s new NISA (from 2024), a tax-advantaged account that helps you grow investments faster by keeping dividends and capital gains tax-free.
What you’ll learn
How the new NISA structure works and who can use it
The two “buckets”: Tsumitate (accumulation) and Growth, and what fits where
Annual and lifetime limits—and how sold investments free up space
What taxes you avoid and how that compounds over time
Step-by-step examples of using both buckets effectively
A simple case study that you can mirror for your own plan
Common mistakes to avoid when using NISA
Concept explanation
Think of NISA like a tax-free greenhouse for your investments. Normally, when your money grows—through dividends or by selling at a profit—taxes take a slice. In Japan, that slice is typically a bit over 20%. Inside NISA, that slice is zero. Your money keeps all the growth, which helps it compound faster.
The new NISA has two shelves (often called “buckets”):
Tsumitate (Accumulation) bucket: Designed for regular, steady monthly investing in carefully screened, low-cost funds.
Growth bucket: A flexible shelf for individual stocks, ETFs, REITs, and many mutual funds.
You can use both buckets in the same year, up to set limits. There’s also a lifetime cap on how much you can contribute in total. A big improvement over the old NISA is that the tax-free period is indefinite—no expiry. Another improvement is that if you sell something, you can regain that space and reuse it (more on timing below).
Why it matters
Taxes are one of the biggest frictions in investing. If you pay tax every time you receive a dividend or realize a gain, you have less money compounding for you. By removing this drag, NISA can shorten the time it takes to reach goals like an emergency fund buffer, a home down payment, or retirement savings.
Beginners often feel overwhelmed choosing where to start. The Tsumitate bucket gives a simple, low-maintenance path: set a monthly amount into diversified, low-fee funds and let time do the heavy lifting. Meanwhile, the Growth bucket lets you fine-tune—add a Japan index ETF, a global ETF, or specific companies you believe in, within the same account.
The essentials: limits, eligibility, and products
Eligibility: Residents of Japan aged 18 or older.
Annual limits (per person):
Tsumitate bucket: up to ¥1,200,000 per year
Growth bucket: up to ¥2,400,000 per year
Combined annual maximum: ¥3,600,000 per year
Lifetime contribution limit: ¥18,000,000 total across both buckets, of which up to ¥12,000,000 can be in the Growth bucket.
Tax-free period: Indefinite (no time limit while you hold within NISA).
Taxes avoided: Dividends and capital gains inside NISA are tax-free.
Product types:
Tsumitate: Only eligible low-cost index funds and ETFs that meet regulatory criteria.
Growth: Individual Japanese/foreign stocks, ETFs, REITs, and many mutual funds.
One NISA account per person: Held at one financial institution at a time (you can transfer institutions, but not hold multiple concurrently).
When you sell investments inside NISA, the lifetime limit space tied to that purchase is restored and can be reused, typically from the following year. This makes the lifetime cap “recyclable.”
Calculation method (step-by-step)
Let’s break down how contributions, taxes, and space restoration work.
Understanding the tax savings
Outside NISA: Suppose your ETF pays ¥50,000 in dividends and you realize ¥150,000 in gains in a year. Total taxable investment income = ¥200,000. With a tax rate a bit over 20%, you would pay roughly ¥40,000 in tax.
Inside NISA: That same ¥200,000 is tax-free. You keep the full amount, which boosts your reinvestment and compounding.
Annual and lifetime limits in action
You can contribute up to ¥1,200,000 to Tsumitate and ¥2,400,000 to Growth in the same calendar year. That’s the input flow.
Each yen you use to buy investments inside NISA counts toward both that year’s limit and your lifetime limit.
Lifetime cap: ¥18,000,000 overall. Within that, the Growth bucket is capped at ¥12,000,000. So if you used the full Growth lifetime cap, the remaining ¥6,000,000 would be for Tsumitate.
Selling and restoring space
If you sell ¥500,000 worth of investments that you originally purchased within NISA, the “space” associated with that ¥500,000 becomes available to reuse, typically from the next calendar year.
Important: It is the purchase amount that counts for the limit, not the current market value.
Example A: Monthly Tsumitate plan
You set up an automatic investment of ¥30,000 per month into an eligible global index fund within the Tsumitate bucket.
Yearly total = ¥360,000, which is within the ¥1,200,000 Tsumitate annual limit.
If the fund grows 5% in a year, you avoid taxes on dividends and any realized gains, allowing full reinvestment.
Example B: Using the Growth bucket tactically
You buy ¥1,000,000 of a Japan index ETF, ¥800,000 of a global ETF, and ¥600,000 of two individual stocks.
Total Growth purchases = ¥2,400,000, hitting the annual Growth cap.
All dividends from these holdings and any gains realized inside NISA are tax-free.
Case study: Building a plan you can copy
Aiko, age 29, is new to investing and wants to keep it simple but flexible.
Goal: Long-term wealth building for future home purchase and retirement.
Budget: ¥110,000 per month to invest.
Approach: Use both buckets.
Step-by-step plan:
Tsumitate bucket (automatic): ¥60,000 per month into an eligible global stock index fund. Annual total = ¥720,000, well under the ¥1,200,000 Tsumitate cap.
Growth bucket (flexible): The remaining ¥50,000 per month = ¥600,000 per year. She splits it into:
¥300,000 in a Japan index ETF
¥300,000 in a global bond ETF over the year
Rebalancing approach: Once a year, if her stock funds have grown a lot, she sells a portion inside NISA and buys more bonds to keep balance. The sale is tax-free. If she sells ¥200,000 worth, that space is typically restored next year, and she can contribute up to that amount again without breaching the lifetime cap.
Outcome after year 1: Aiko contributed ¥1,320,000 total (¥720,000 Tsumitate + ¥600,000 Growth), which is below both annual caps. Any dividends received during the year remain fully in her account.
Why this works:
Automation keeps her consistent.
The Growth bucket gives her room to adjust to changing markets or personal priorities without tax friction.
Over many years, skipping taxes on dividends and gains can add up to hundreds of thousands of yen in extra wealth.
Practical applications
Start with Tsumitate if you’re overwhelmed: Set a comfortable monthly amount into a broad, low-cost index fund. Increase it when your budget allows.
Use Growth for specific goals: Add a domestic index ETF or a dividend stock you believe in. Keep it diversified—avoid betting everything on one company.
Harvest tax-free dividends for cash needs: If you need cash for a big purchase, dividends and realized gains inside NISA don’t trigger tax. You can sell with less hesitation than in taxable accounts.
Reuse space strategically: If you plan to switch funds, selling inside NISA won’t cause taxes, and the lifetime space tied to that purchase comes back (generally from next year), so you can reinvest.
Think long term: Because there’s no time limit, NISA is ideal for multi-year or multi-decade goals. Let compounding work without tax drag.
Keep records simple: Track how much of your lifetime cap you’ve used in each bucket to avoid surprises, especially if you invest at multiple times during the year.
Common misconceptions
よくある誤解
- “If I lose money in NISA, I can deduct the loss from taxes.” No. Losses inside NISA cannot be used to offset gains in taxable accounts.
- “I can open multiple NISA accounts at different brokers.” You can hold only one NISA account at a time per person. You can change institutions, but not have multiple active accounts.
- “I’ll be taxed if I hold longer than a few years.” The new NISA has an indefinite tax-free holding period—no expiration.
- “Selling inside NISA wastes my lifetime limit.” Selling does not permanently consume the limit. The space tied to your purchase is restored, typically from the following year.
- “Tsumitate and Growth hold the same products.” Tsumitate is limited to approved low-cost funds; Growth can include stocks, ETFs, REITs, and many mutual funds.
Tips for product selection
Favor low-cost, diversified funds for the Tsumitate bucket. Check the fund’s expense ratio; lower costs leave more growth for you.
In the Growth bucket, consider core holdings first (broad index ETFs) before adding satellites (sector or individual stocks).
Avoid frequent trading. Even though gains are tax-free, too much trading can harm returns through poor timing.
Reinvest dividends unless you need cash now. Compounding accelerates when nothing is siphoned away by taxes.
Summary
まとめ
- New NISA lets residents 18+ invest tax-free on dividends and capital gains with no time limit.
- Two buckets: Tsumitate (¥1.2m/year, eligible funds) and Growth (¥2.4m/year, wider choices).
- Lifetime cap is ¥18m total, with up to ¥12m for the Growth bucket.
- Selling inside NISA is tax-free, and the lifetime space tied to purchases is restored, typically the next year.
- Use Tsumitate for automated core investing; add Growth for flexibility and goals.
- Keep diversification and low costs in mind; avoid concentrated bets.
- Losses in NISA can’t offset taxes elsewhere; one active NISA account per person.
Rules can change, and product eligibility lists are updated over time. Always confirm details with your financial institution before investing.
Glossary
NISA: A tax-advantaged investment account in Japan that makes dividends and capital gains tax-free within set limits.
Tsumitate bucket: The accumulation portion of NISA for regular contributions into eligible low-cost funds.
Growth bucket: The flexible portion of NISA allowing stocks, ETFs, REITs, and many mutual funds.
Dividends: Cash payments companies make to shareholders, often from profits.
Capital gains: Profit from selling an investment for more than the purchase price.
Expense ratio: The annual fee charged by a fund, expressed as a percentage of assets.
