Weigh up if choosing a self-managed super fund is right for you.
Choosing your super fund is an important, yet complicated aspect of managing your finances. Currently, more and more people are opting for Self-Managed Super Funds (SMSF) – in fact, there are now 1.1 million Australians using this form of super fund. When deciding whether an SMSF is suitable for you and your finances, there are several factors you need to weigh up.
What is a Self-Managed Super Fund?
An SMSF is a retirement fund that is managed by yourself. That is, instead of putting money into a retail or industry super fund, you deposit into your own private fund. This means that you are also responsible for managing the fund and making all investment decisions, as well as monitoring its government regulation compliance.
Pros:
- Control
Managing your own super fund gives you full control over your investments, giving you the chance to take advantage of new opportunities that are otherwise unavailable when using a retail or industry super fund.
- Flexibility
As there is no third party, managing your super fund means that you can enjoy more flexibility in how you invest your money. Through this, you can make quicker decisions and invest in profitable trends, while also being able to move away more easily from less profitable ventures.
- Effective Tax Management
Increased control over investment decisions allows for strategic planning to better manage the tax position of the fund and other entities in the group. Generally, SMSFs have a tax rate of 15% on earnings like other superannuation funds, however, income on assets supporting retirement phase income streams can be exempt from tax which can result in significant tax savings. To discuss further, contact Advivo: your expert SMSF accountants in Brisbane.
- Investment Options
SMSFs give you the ability to choose and control how your money is invested. This means that you can diversify your investments with assets such as properties, shares, derivatives, and term deposits. Many business owners choose to utilise their SMSF to purchase their business premises, however, there are more onerous conditions in relation to residential property.
Cons:
- Responsibility
When managing your SMSF (as the trustee), you are responsible for ensuring that your fund meets the various legal requirements and regulations associated with managing a super fund. Failing to comply may result in penalties that could be costly. This includes legal requirements for trustees to maintain accurate records. Trustees must be able to provide accurate records to the Australian Taxation Office if requested and must also keep supporting documentation to justify all transactions of the fund for audit purposes.
- Costs
Setting up and managing an SMSF can be an expensive venture, especially when the assets held within it are low in value. Furthermore, there are administrative and legal costs that may also apply during the setup and maintenance of your fund.
- Time Commitment
There is a considerable amount of time you must invest into managing your SMSF as compared to an industry or retail super fund. This includes the time needed to gain a good understanding of your investment options and the market, as well as time dedicated to ensuring your fund is complying with regulations.
- Not eligible for government compensation schemes
If you lose any money from your SMSF through fraud or theft, or in any other manner outside of your control, you will not be eligible for government compensation schemes that are available for members of industry and retail super funds.
