Both the iDeCo lump sum and a company retirement allowance are, for tax purposes, the same "retirement income." Retirement income has a powerful tax-free allowance called the retirement income deduction, but if you receive iDeCo and a retirement allowance close together in time, the deductions are subject to overlap elimination, the second deduction is cut, and your tax increases.
From January 2026 (Reiwa 8), the rule for receiving iDeCo first changed from "5 years" to "10 years." We organize the mechanism by which the amount of tax changes depending on the order and timing of receipt into three rules.
① Retirement allowance → retirement allowance = leave 5 years (within the 4 years before the prior year)
② iDeCo first → retirement allowance = leave 10 years (extended from 5 to 10 years in the 2026 reform)
③ Retirement allowance first → iDeCo = leave 20 years (within the 19 years before the prior year)
If you fall under ② and the interval is too short, the retirement income deduction is cut and your tax burden increases (about ¥700,000 difference in the calculation example below).
Why is retirement income taxed so lightly in the first place?
Retirement income is subject to separate taxation, calculated apart from other income, and has the following two advantages[NTA No.1420].
Retirement income deduction amount
・20 years of service or less: ¥400,000 × years of service (minimum ¥800,000)
・More than 20 years of service: ¥8,000,000 + ¥700,000 × (years of service − 20 years)
Because the remainder after subtracting the deduction is further halved before being taxed, the tax burden is considerably lighter than on salary and the like. And the iDeCo (defined contribution pension) lump sum is also treated as this retirement income, with the retirement income deduction calculated from "the number of years enrolled in iDeCo." For the basics of the retirement allowance itself, see Taxes on retirement allowances.
The issue is the "overlap elimination of the retirement income deduction"
The retirement income deduction grows larger the longer your years of service or years of enrollment. However, if you receive a retirement allowance and an iDeCo lump sum twice, close together in time, the overlapping portion of each period is eliminated, and the second retirement income deduction is cut. This is overlap elimination.
If you leave a certain interval between the two receipts, you can avoid overlap elimination and use each retirement income deduction in full. The required interval differs depending on "which one you receive first," and moreover part of it was lengthened by the 2026 reform.
The "three rules" that change with how you receive
What becomes subject to overlap elimination is the case where there was a prior receipt "within ◯ years before the prior year" of the retirement income received later. This ◯ years changes with the combination of receipts[Ministry of Finance, FY Reiwa 7 outline].
| Combination of receipts | Target period | Common name / reform |
|---|---|---|
| ① Retirement allowance → retirement allowance (company retirement allowances with each other) | Within 4 years before the prior year | 5-year rule (no change) |
| ② iDeCo first → retirement allowance later | Within 9 years before the prior year | 5→10-year rule (2026 reform) |
| ③ Retirement allowance first → iDeCo later | Within 19 years before the prior year | 19-year rule (no change) |
The reform in ② applies to retirement allowances for which payment is received on or after January 1, Reiwa 8 (2026). For the "receive iDeCo first, then the retirement allowance" method, whereas leaving 5 years used to be enough, now the deduction is subject to overlap elimination unless you leave 10 years. On the other hand, the 19-year rule (retirement allowance first) in ③ is left unchanged.
What changed in the 2026 reform (concrete example)
The most affected are people who receive both iDeCo and a retirement allowance in their early 60s.
- Receiving iDeCo at age 60 by 2025: the old "5-year rule." Since 5 years have passed, there is no overlap elimination, and the retirement income deduction can also be used in full for the age-65 retirement allowance.
- Receiving iDeCo at age 60 in 2026 or later: the new "10-year rule (within 9 years before the prior year)." With a 5-year interval, it becomes subject to overlap elimination, the retirement income deduction on the age-65 retirement allowance is cut, and the tax burden increases.
In terms of amounts, the impact is on roughly this scale.
- Assumptions: 38 years of service (retirement allowance of ¥20,000,000 received at age 65) / 20 years enrolled in iDeCo (lump sum of ¥8,000,000 received at age 60)
- iDeCo side (age 60): the ¥8,000,000 deduction for 20 years of enrollment can be used in full, so the tax is ¥0 (this is the same under both the old and new rules)
- Retirement allowance side (age 65) · old rule: since 5 years have passed, the ¥20,600,000 deduction (for 38 years of service) can be used in full, so the ¥20,000,000 is within the deduction and the tax is ¥0
- Retirement allowance side (age 65) · new rule: a 5-year interval falls "within 9 years before the prior year" and is subject to overlap elimination. The deduction drops to about ¥12,600,000, and the taxable retirement income (¥20,000,000 − ¥12,600,000) × 1/2 = ¥3,700,000 → income tax and residence tax together come to roughly an increase of about ¥700,000
* This is an estimate with the tax rates and deduction calculation simplified. Because the actual overlap-elimination calculation changes with how the enrollment and service periods overlap, always run an individual estimate before receipt.
In other words, the once-standard tax-saving structure of "receiving iDeCo first as a lump sum, then the retirement allowance 5 years later" has become harder to use. The income-deduction merit of iDeCo itself is still alive (iDeCo's tax-saving effect and filing procedure).
So how should you receive them?
The direction that makes the most of the deduction
- If you take iDeCo first, leave 10 years or more until the retirement allowance (delay your retirement, receive iDeCo as a lump sum earlier, and so on)
- iDeCo can begin to be received between ages 60 and 75. Design the timing together with the receipt of pensions (public pensions, etc.)
- Combining a lump sum with a pension (installments) and splitting it between retirement income and miscellaneous income is another option
Don't overreach for a forced "complete separation"
- If the retirement allowance comes first, the 19-year rule applies. Leaving nearly 20 years after that is difficult in practice
- Even if you can't separate them completely, the 1/2-taxation advantage remains
- The optimal answer changes with years of service/enrollment and amounts. Always run an estimate (Procedure for calculating taxes on retirement allowances)
The 10-year rule in ② targets retirement allowances for which payment is received on or after January 1, Reiwa 8. If you received the iDeCo lump sum by December 31, 2025, it is judged under the old "5-year rule (within 4 years before the prior year)." For those whose receipt timing is on the border, the tax changes between receiving within the year and receiving in the following year or later, so we recommend checking early.
Points to keep in mind as well
- For "short-term retirement allowances, etc." with 5 years of service or less, 1/2 taxation cannot be used on the portion of the remainder after subtracting the retirement income deduction that exceeds ¥3,000,000 (for officers and the like, with 5 years or less, 1/2 is not available on the whole amount).
- Unless you submit the "Declaration of Receipt of Retirement Income" to the payer, a flat 20.42% is withheld from the retirement allowance (settlement via a tax return is possible). With the reform, the retention period for this declaration became 10 years instead of 7 years.
- The retirement income deduction on the iDeCo lump sum is calculated from "years of enrollment" (a separate thing from the company's years of service).
Do this today
- Check the planned age of receipt and the approximate amount in your company's retirement allowance rules
- Following the overlap rules for the retirement income deduction, set a provisional year to receive your iDeCo lump sum
- Using your Nenkin Teikibin (annual pension statement) and your iDeCo balance, draw up a one-page “receipt timeline”
More actions: the Take-Home Boost Checklist.
FAQ
What changed in the 2026 reform?
Where you receive the iDeCo lump sum first and later receive a company retirement allowance, the target period for overlap elimination was extended from "within 4 years before the prior year (5-year rule)" to "within 9 years before the prior year (10-year rule)." It applies to retirement allowances for which payment is received on or after January 1, Reiwa 8 (2026).
Did the "19-year rule" change too?
No. Where you receive a retirement allowance first and later receive the iDeCo lump sum, the "within 19 years before the prior year (19-year rule)" is left unchanged and is not affected by the reform. What changed in 2026 is the case where iDeCo comes first (the 10-year rule).
Which is better to receive first, iDeCo or the retirement allowance?
It cannot be stated in general because it changes with years of service, years of enrollment, and amounts. In general, the more you space them out, the more fully you can use the retirement income deduction, but complete separation is often difficult. The surest way is to have a financial institution or tax accountant estimate the specific tax amount for you.
If I receive iDeCo during 2025, does the old rule apply?
Yes. Because the 10-year rule targets retirement allowances for which payment is received on or after January 1, Reiwa 8, if you received the iDeCo lump sum by December 31, 2025, it is judged under the old "5-year rule."
Summary
Reference links (sources)
This article is based on the following official materials (neutral, primary sources). Because the system and special provisions are subject to reform, please check the latest content and an individual estimate before deciding on receipt.
- National Tax Agency No.1420 When you receive a retirement allowance (retirement income) (in Japanese)
- Ministry of Finance, Outline of the FY Reiwa 7 Tax Reform (in Japanese)
- National Tax Agency, Reiwa 8 edition — Outline of Withholding at Source (contents of the tax reform) (in Japanese)
- National Tax Agency No.2732 Withholding at source on retirement allowances, etc. (in Japanese)
* This article is general information, not tax advice. The overlap-elimination calculation for retirement income is complex; for individual judgments, please confirm with a tax office, tax accountant, or financial institution.