AN SMSF is a Self-Managed Superannuation Fund, or in more general terms, a “do-it-yourself” superannuation fund. SMSFs are designed to give its members control over the way their superannuation fund is invested, by allowing members to choose the investments that they believe to be most profitable.
Among their many benefits, SMSFs are generally considered to be the most flexible and tax effective way to grow your retirement “nest egg”. With SMSFs growing in popularity amongst Australians, more are considering whether a self-managed super fund is the right strategy for their retirement. If you’re currently thinking about an SMSF, here are the top things to consider:
Responsibilities: What’s Involved in Running an SMSF?
You are ultimately responsible for the operation of the SMSF and may utilise professional administrators, accountants and investment analysts to help manage the fund. Managing your SMSF is a big responsibility and since your retirement savings are at stake, there are strict rules and laws governing its operation as well as access to its funds.
Benefits: Why Run an SMSF?
Let’s look at some of the benefits of SMSFs. One of the most popular is the fact that you control the fund’s assets and all investment decisions are made by you or its other members. Along the same lines, you can also use this as a family fund and up to four family members can participate and enjoy the rewards.
Since you are the one making the decisions it also provides you with the greatest amount of flexibility. This enables you to monitor market movements, adjust accordingly and choose how you want your money to be working in the marketplace.
Additionally, the fee structure associated with SMSFs is often more cost effective than other retail super funds. However, the biggest benefit provided by an SMSF is in the form of tax concessions. SMSFs enjoy the lowest tax rate of any entity structure available. 15% is the maximum rate and this can be reduced through offsetting from other tax credits.
Challenges: What to Consider Before Starting an SMSF?
Now that we understand the benefits, let’s consider the challenges inherent to SMSFs. Managing your own SMSF can be very time consuming due to the amount of paperwork. Of course this can be reduced significantly by using a professional administrative service.
Another substantial consideration, and reason to use a professional service, is the risk of non-compliance. There are substantial penalties involved for non-compliance and tax fines can be as high as 45%. Additionally there are restrictions around members or related parties receiving loans or using residential investment property + held by the fund. This is governed by the “Sole Purpose” rule which states that the sole purpose of your SMSF must be to provide retirement and death benefits.
Is an SMSF Right For You?
So if you are up for these challenges, with the help of experienced professionals where needed, an SMSF is one of the most flexible, effective and tax-friendly option for maximising your retirement lifestyle.
Partnering with the right team of professionals will undoubtedly offset the inherent challenges of compliance and time commitment and ensure that you have the most effective investment strategy in place. So even if that beautiful “Holiday House” on the coast doesn’t qualify for inclusion in your SMFS due to the “Sole Purpose” rule, with the right strategy, perhaps it just could become your retirement home.
