Junior NISA Account

Overview – Junior Nisa accounts are normal stockbroking accounts for minors but remain tax free 5 years and withdrawals are unable to be made for 18 years.

The Junior NISA account is the same as a regular NISA account but for minors.
It has the limitation that only 800,000 yen can be invested yearly and withdrawals cannot be made for 18 years.
Once the child turns 20 years old the account is converted to a regular NISA account.

Junior NISA accounts are the best place to invest in a long term time frame for your children or grandchildren.
Many people would use this for kids college or as a coming of age gift.

If you invest 800,000 in a year into mutual funds returning an average of 12%, in 5 years that will have grown to 1.45M yen.
The taxable capital gains in this case is 1.45M – 0.8M yen = 650,000 yen.
The tax due upon withdraw would be 650,000 x 20% = 130,000 yen.
If you do this for 5 years you will have saved 130,000 x 5 years = 650,000 yen!

Let’s see what happens if you invest 800,000 yen each year for 5 years.
800,000 yen invested yearly at 12% for 5 years.

Year Year Deposits Year Interest Total Deposits Total Interest Balance
1 799,992.00 53,954.66 799,992.00 53,954.66 853,946.66
2 799,992.00 162,256.47 1,599,984.00 216,211.14 1,816,195.14
3 799,992.00 284,293.67 2,399,976.00 500,504.80 2,900,480.80
4 799,992.00 421,808.23 3,199,968.00 922,313.03 4,122,281.03
5 799,992.00 576,763.08 3,999,960.00 1,499,076.11 5,499,036.11

This would all be tax free.
Let’s say you left it there for another 13 years.

5.49M yen invested once at 12% for 13 years.

Year Year Deposits Year Interest Total Deposits Total Interest Balance
1 0.00 697,415.42 5,499,036.11 697,415.42 6,196,451.53
2 0.00 785,865.15 5,499,036.11 1,483,280.57 6,982,316.68
3 0.00 885,532.52 5,499,036.11 2,368,813.10 7,867,849.21
4 0.00 997,840.21 5,499,036.11 3,366,653.31 8,865,689.42
5 0.00 1,124,391.33 5,499,036.11 4,491,044.64 9,990,080.75
6 0.00 1,266,992.29 5,499,036.11 5,758,036.93 11,257,073.04
7 0.00 1,427,678.63 5,499,036.11 7,185,715.56 12,684,751.67
8 0.00 1,608,744.01 5,499,036.11 8,794,459.57 14,293,495.68
9 0.00 1,812,773.02 5,499,036.11 10,607,232.59 16,106,268.70
10 0.00 2,042,678.01 5,499,036.11 12,649,910.60 18,148,946.71
11 0.00 2,301,740.71 5,499,036.11 14,951,651.31 20,450,687.42
12 0.00 2,593,659.05 5,499,036.11 17,545,310.36 23,044,346.47
13 0.00 2,922,599.94 5,499,036.11 20,467,910.30 25,966,946.41

Overall in 18 years you would have invested 4.0M yen which would have grown to 25.96M yen.
And you would have saved 650,000 in tax.

Wouldn’t that be a great 18th birthday present?

Most people will not invest the full 800,000 / year so I would recommend something like 240,000 yen / year or 20,000 / month.
This would grow to 1.64M yen after 5 years and left for another 13 years would grow to 7.79M yen.
In my estimate this would cover university and living costs for each child from 18-22 years old, with maybe some left over if they also worked.

Any major Bank or Securities company that has NISA accounts will also offer Junior Nisa accounts to open.
You cannot change institution once you have opened the account.

You can read more about Junior NISA accounts here:
http://www.jsda.or.jp/en_old/newsroom/researches-studies/html/JuniorNISA.pdf