So, you’re considering switching to a self-managed super fund? Managing your own super can be a great option, but you’ll want to know what it entails to make sure it’s the right choice for your retirement fund.
Benefits of an SMSF
When you manage your own super, you get to choose the investments and the insurance, effectively becoming both a trustee and a member .
The key benefits of SMSF are:
- Investment choice: You can choose where your money goes and when and there is a wider range of investment options compared to APRA-regulated funds. If you operate a small business or are self-employed, a commercial property can be purchased through your SMSF. This property can then be rented to your business providing this is at the prevailing market rates. Artwork, collectables, physical gold and investments in some unlisted entities may also be permitted within an SMSF.
- Flexibility & control: As you and any members of your fund are also the trustees, there is the flexibility to tailor the rules of the SMSF to suit your specific needs and circumstances.
- Accountability: Being both the trustee and member means you will be more aware of how your super is invested and the performance of those investments.
- Tax management: SMSFs have the same tax rates as other superannuation funds, however you can more easily put in place tax strategies that best benefit you and your situation.
- Creditor protection: Creditors cannot generally access an individual’s super in an SMSF (unless clawback laws apply where someone has deliberately transferred their assets into a SMSF to escape paying their creditors).
- Super pools: You can pool your super with up to 5 other people when you have a SMSF. This allows you to invest beyond your individual capacity, such as direct property.
Risks & Responsibilities of an SMSF
Having control over your own super comes with many benefits, but it does come with risks.
Your SMSF can have no more than six members. Most SMSFs have two or more. As a member, you are a trustee of the fund — or you can get a corporate trustee. In either case, you are responsible for the fund.
Things to keep in mind are:
Historically SMSFs do not perform as APRA-regulated funds. This is because investments within APRA-regulated funds are managed by experts. Ultimately, you would only opt to switch to an SMSF if you feel confident your fund would out-perform your APRA-regulated fund.
If you assets within the SMSF are low in value, the costs for operating the fund can be high. SMSF management costs are fixed, and while this can be good if you’re seeing a great return, it can erode funds that are of low value. As a rule of thumb, you should have at least $250,000 of assets in your fund to make the operating and setup costs worthwhile, but an expert financial advisor will be able to evaluate your circumstances and assets to help you decide.
When you ‘self-manage’ your superannuation, you take responsibility for all investment decisions, unlike an APRA-regulated fund where this is outsourced to an investment manager. As such, it’s critical that you have a strong understanding of investment options and the market, as well as fund compliance and tax laws. Breaching these can result in high penalties from the ATO and you may be personally liable, with serious breaches imposing a tax rate of up to 47%. This is why it’s important to work alongside a financial advisor or SMSF administrator if you do choose to switch to an SMSF.
Aside from needing to have considerable knowledge and confidence in running your SMSF, it can also be time-consuming for trustees. They’re called ‘self-managed super funds’ for a reason, which means you have to put the time aside to make sure the compliance is managed, the investment choices are sound and the fund is operating as it should. If you are time-poor, but still want to set up an SMSF, a financial advisor or SMSF administrator can help ease these time-pressures and management burdens.
How to Set Up an SMSF
Part of the appeal of an SMSF is controlling and having access to a broader range of investments, so you’ll want to research your investment options prior to setting up your SMSF. If you are 100% sure about managing your own super fund, getting professional advice is a must. Do however, keep in mind that there are strict rules about what you can invest your super in.
You can get an overview of these restrictions on investments from the ATO, but our licensed financial advisors will also be able to provide the best advice tailored to your goals and needs.
Call the SMSF accountants at PCR Accounting & Advisory today to find out how to start your SMSF.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.