What Is An SMSF?
The simplest way to explain would be that Self-Managed Super Funds (SMSFs) are a way of saving for your retirement. Though in detail, what is an SMSF?
The difference between an SMSF and any other type of fund is that the members of an SMSF are usually also the trustees. This means that the members run it for their benefit and are responsible for complying with the super and tax laws. There can be between one and four members in Self-Managed Super Funds. One of the main advantages is the level of control that trustees have when it comes to tailoring the fund to meet their individual needs.
What Are The Benefits Of An SMSF?
You are considering setting up an SMSF but are wondering what are the benefits of an SMSF? It could offer significant benefits in retirement. Apart from that, there are several key benefits to managing your SMSF:
- Investment Choice
SMSFs provide a range of investment options. Trustees can potentially access direct shares, high-yielding cash accounts, term deposits, income investments, direct property, unlisted assets, international markets, collectables, and much more.
- Tax Strategies
Like in all super funds, SMSFs benefits from concessional tax rates. In the accumulation phase, tax on investment income is capped at 15 per cent; in the pension, there is no tax payable, not even capital gains tax. If you carefully consider your tax strategies, it will help you grow your super savings and reduce tax payments as you transition to retirement.
- Flexibility
It allows multiple members to run a mixture of accumulation and pension accounts. You’ll be able to adjust your investment mix as it suits you, allowing for a fast response to changes in the market conditions, super rules, or personal circumstances.
- Transparency
SMSFs offer significant transparencies that allow trustees to align their personal goals with their investment decisions. Whether you’re passionate about property, shares, or sustainable and ethical investing. It provides a platform that allows you to understand where your money is invested, with complete visibility of performance and tax treatment.
- Cost
Trustees must lodge an annual tax return and audit as well as pay ATO fees. These are capped and not based on a percentage of your super balance. The more an SMSF grows, the more cost-effective it becomes. Though the total cost of running an SMSF will depend on the related investments and any cost associated with engaging professional support.
- Consolidate Superannuation Assets
It allows a trustee to combine their superannuation assets with up to three other members such as partners or family members. Consolidating super accounts immediately creates a larger fund balance, which increases the fund’s assets and investment opportunities with only one set of fees.
Is SMSF A Good Idea?
It is important to understand that while there are numerous benefits to establishing it, there are also many considerations and risks to be aware of when making your decision. These include trustee responsibilities, costs, and insurance cover. This might raise the question that is SMSF a good idea?
When establishing an SMSF, eight things need to be considered by the trustees. These are as follows:
- You should be prepared to take an active interest in your super
- You will have legal and administrative responsibilities for your SMSF
- Make sure you have an appropriate minimum balance to operate your SMSF
- You must seek advice if you are planning to live overseas for an extended period
- Consider holding insurance cover within your existing super fund
- You will need to be aware of compensation, complaints, and dispute resolution mechanisms
- The structure of your SMSF is your decision
- You are responsible for devising an exit strategy if you close your SMSF
How Much Money Do You Need To Have A Self-Managed Super Fund?
Now that you have the basics down, you might be wondering how much money do you need to have an SMSF. For SMSFs to be cost-effective, you need a bare minimum of $200,000 to $300,000. In addition to establishment costs, including a trust deed and creation of a company to act as a corporate trustee (if applicable), some of the ongoing costs associated with running an SMSF include an annual tax return and independent audit, ATO fees, and investment fees. You can also choose to pay for professional SMSF support services to help with the management and compliance of your fund.
How Does An SMSF Work?
You might be wondering, how does it work? They are established solely for providing financial benefits to members in retirement and their beneficiaries on death. They have their own Tax File Number (TFN), Australian Business Number (ABN), and transactional bank account. These allow them to receive contributions and rollovers, make investments, and payout lump sums and pensions. All the investments are made in the name of the fund and are controlled by the trustees. As a trust, an SMSF requires a trustee. In SMSF, there are two trustee structure options:
- Corporate Trustee:
In this, a company acts as the trustee and each member is a director. This structure allows simpler recording and registration of assets, providing administration efficiencies, and flexibility in membership. Company establishment and ongoing fees are applicable with this structure.
- Individual Trustee:
Each member is appointed as a trustee, with a minimum of two trustees required,
What Are the Responsibilities Of An SMSF Trustee?
As a trustee, you are responsible for making investment decisions and ensuring the implementation of an investment strategy for your fund. SMSFs also have strict administrative obligations that require you to maintain records, provide financial statements, complete a tax return and organize an independent audit. For this reason, many trustees engage SMSF specialists to help them manage their accounting, auditing, and tax reporting, as well as provide financial and investment advice. However, they always remain completely responsible for the decisions and administration of their fund.
