If there’s a way to boost your retirement funds while minimising taxes and other expenses, would you do it? Over one million Australians have done it—by setting up their SMSFs.
What Are Self-Managed Super Funds?
A self-managed super fund or SMSF is a great way to boost your retirement savings. It allows you to secure loans to invest in assets that can potentially maximise your funds. When it comes to tax rates, it has the same rates as other superannuation funds. But through an SMSF, you can implement tax strategies that best suit your situation.
Are Self-Managed Super Funds Worth It?
Still, the question is this: are self-managed super funds worth it? Yes, it is. Like with any financial vehicle, SMSFs may come with a few challenges. But its benefits can easily outweigh those risks. Here are more reasons you should set up your SMSF today.
It’s cost-effective.
Setting up an SMSF makes the most sense when you have large balances. That’s because the operational costs are fixed. As your fund grows in value, the costs to administer the funds will reduce proportionally. That’s a huge advantage compared to other types of super. Operational costs are often taken as a percentage of the overall balance in retail or industry funds.
Say you and your wife each have $1.5 million in super. A typical super fund charges 0.3% for administration fees. That could easily cost each of you $4500 or $9000 in total. Now, compare that to the $4000 median cost of running a joint SMSF. In operational costs alone, you could save thousands of dollars.
As a general rule of thumb, you should have at least $250,000 in your super to make the costs of running SMSF cost-effective and worthwhile. Also, saving on operational costs isn’t enough reason to make the switch to self-managed funds. Keep in mind that running your SMSF entails hiring financial professionals to assist you with strategies and compliance.
It allows you to pool your super with others.
If you need another reason to start your SMSF, here it is: you can team up with family and friends. With the new rules, SMSFs can now have a maximum of six members. That opens up the opportunity to purchase assets that may be too expensive for an individual investor.
Multi-member SMSFs aren’t only beneficial for purchasing real estate—they can also enable large families to consolidate their retirement wealth. That can help them save costs and empower their younger family members to leverage into more substantial investments. The only downside in this aspect is the unpredictable family dynamics. But in certain circumstances, multi-member family SMSFs can outweigh some disadvantages.
It enables you to own your business premises.
Unlike other super funds where debt isn’t permitted, SMSF allows you to take out a loan. You can use it to fund the purchase of a property through a limited recourse borrowing arrangement (LRBA) structure. You can buy a residential property, but you can’t live in it since asset rules keep SMSF members from using assets for their sole benefit.
The only exception to those rules is buying a commercial property for your shop or company. Essentially, when you use the commercial property for your business, you’re also paying rent to your SMSF. The fund then grows, bringing financial benefits to you and other members.
Undoubtedly, owning your business premises makes your self-managed super fund worth it. Plus, it would help protect you against creditors in case of bankruptcy. Generally, creditors cannot access an individual’s super. That’s unless you’ve deliberately transferred your assets into an SMSF to escape creditors, and clawback laws are applicable in your situation.
It makes it possible to keep assets in the family.
SMSFs can give you flexibility with estate planning, especially when it comes to managing SMSF assets. In certain situations, the fund can be passed on to beneficiaries when the member passes away—even without probate. That’s possible if the super has the liquidity and resources to pay benefits, including death benefits.
Say you used your SMSF to purchase a commercial property for your family business. Even if you already passed on, that property could remain in your SMSF for different generations as long as other family members join the business and the super—and fulfil their obligations.
It allows you to carry out a few tax tweaks.
If you’re still wondering whether SMSF is worth your while, here’s another advantage: tax tweaks. You can reduce your tax expenses through strategies that best suit your situation.
Unlike other superannuation structures, SMSFs offer flexibility on the timing of contributions, allocation of earnings to certain members and implementation of financial reserves. With the help of professional SMSF advisers, you can minimise the amount of overall tax your SMSF needs to pay. That’s something you can’t do when you’re part of a large industry or public sector fund. The trustee of a large super fund with thousands of members can’t make tax tweaks for a single person; they may make a decision that doesn’t benefit your tax position.
SMSF Is Worth It—And We’re Here to Help You Succeed
Now you know all the advantages of SMSF, it’s high time to set your SMSF up for success. Our expert team is here to make establishing an SMSF a smooth, uncomplicated process.
When setting up your fund, there’s no room for errors. For one, the superannuation industry is highly regulated, so we’re here to make sure your SMSF setup is compliant. Plus, we’re talking about pooling a large portion of your life savings! You need all the help you can get to ensure you get it right from the outset—and SMSF in Focus is here to make that happen.
Count on our team to take care of the entire setup process. That includes creating the trustee structure and setting up a trust deed. We’ll also handle the ATO application, as well as the Tax File Number and ABN registration. Get in touch with us today to get started.
