Tax-advantaged investments no lost cause for U.S. residents of Japan

COMMUNITY / How-tos

Tax-advantaged investments no lost cause for U.S. residents of Japan

While some American taxpayers assume they are ineligible to participate in Japan’s tax-deferred savings schemes, certified public accountant Rick Gundlach says that this is no longer the case. | GETTY IMAGES

By Gendel Gento
Contributing writer

Sep 24, 2025

While Japan has two advantageous investment vehicles accessible to both Japanese citizens and foreign residents, namely the Nippon Individual Savings Account (NISA) and the Individual Defined Contribution (iDeCo), conventional wisdom in internet finance circles dictates that U.S. taxpayers should steer clear of them. Since their country to citizens and green card holders abroad, the tax implications and potential pitfalls are not worth the hassle, the truism goes.

Japan resident Rick Gundlach, a certified public accountant and attorney who runs his own practice out of both Pennsylvania and Chiba Prefecture, disagrees.

“Something I recurrently face as a U.S. tax preparer are individuals saying Americans can’t do iDeCo or NISA,” he says. “If there’s any follow-up, it’s to the effect of ‘because PFICs.’”

PFIC stands for Passive Foreign Investment Company, basically a foreign mutual fund.

“There’s a special tax regime for PFICs because Congress wants to avoid situations where someone can just park their money in an untaxed rabbit hole outside the U.S.,” he says.

However, Gundlach explains that there have been at least 15 years of regulatory dialogue between the Internal Revenue Service (IRS) of the United States and residents abroad about whether foreign government-sponsored retirement programs, where you usually invest in tax-deferred accounts and pay tax once the money is withdrawn at retirement, should be treated like those in the United States.

“The understanding of the tax preparer community is that the IRS is no longer treating these programs (like Japan’s ) like tax-dodging rabbit holes,” he says. “Instead — provided that such countries aren’t taxing the retirement funds along the way — the IRS won’t seek taxes out of them either.”

In other words, citizens and green card holders with a filing obligation back in the U.S. can use iDeCo. There are no tax issues except reporting. Once their account is over $10,000 at any point, they have to report it to the Treasury under the rule called .

Gundlach points out that Japan has another top-up pension program called Kokumin Nenkin Kikin (National Pension Fund). Those not in an employer pension in Japan are eligible to join. You commit to a basic monthly premium based on your age, with extra contributions possible up to ?68,000 a month, an allowance that’s shared with iDeCo.

“There are no PFIC reporting concerns because the fund holds and owns the PFICs and no investment planning decisions to worry about because the fund is professionally managed,” he says.

Gundlach adds that Americans are also eligible to use NISA — but with caveats.

“What’s trickier is that NISA is not a retirement fund. It’s a tax-free investment program. Still,...