If you’re dissatisfied with your industry or retail fund or it’s just time to re-evaluate your superannuation strategy, you might be considering a self-managed super fund (SMSF).
While a SMSF may offer greater control of your retirement savings and more flexibility when it comes to investment options – including property – they also come with significant responsibilities.
A SMSF can be an empowering option for managing your retirement savings, and there are lots of positives, but there are also important considerations that you need to take into account when deciding if a SMSF is right for you.
When it comes to SMSFs it’s important to do your homework, and in this article we outline FIVE key considerations you need to know about.
1. Greater control and investment choice
You control your investments – not a fund manager, so you have greater opportunity for investment in a range of asset classes, enabling you to track and manage your own portfolio which may include shares, residential and commercial property or other personal preferences such as ethical investments.
For savvy investors SMSFs can be an opportunity to adjust your investment mix to respond to personal circumstances or changes in market conditions and use share dividends or rent received to enhance your superannuation savings for retirement.
2. Strict rules and legal obligations
With flexibility comes great responsibility. While a SMSF offers greater control and investment options when investing for your retirement, strict rules apply. A SMSF must remain as a separate entity from your personal investments, and ALL assets and investments must be held for the purpose of funding your retirement.
When you establish a SMSF, you take on dual roles of fund member and Trustee. As Trustee you are legally liable for the fund’s investment decisions and outcomes as well as responsibility for significant administration requirements. It’s important that SMSF Trustees have a clear investment strategy in place which is reviewed regularly, and you may need to seek advice in relation to your investment strategy. There can be substantial fines and penalties for non-compliant SMSFs.
3. SMSFs and property – what you need to know
There’s a lot of do’s and don’ts. You can purchase property through a SMSF if it is for the specific purpose of funding your retirement, however you cannot access your super funds to buy items for personal use (for example you could not reside in a residential property purchased through your SMSF.)
In some circumstances you may be permitted to finance the purchase of a business premises and run your business from this premises (provided you pay a market rate of rent to the SMSF). There are strict conditions associated with borrowing (known as Limited Recourse Borrowing Arrangements) and as a rule of thumb you can’t lend money from the fund to yourself or related parties, and you can’t buy most assets from yourself or related parties.
SMSFs require a substantial balance to make them worthwhile. In our opinion, SMSF funds with balances less than $250,000 may find their funds quickly eroded over the first few years, due to the fees and charges associated with running the fund.
Establishment costs for SMSFs can be high and may involve creating Trust Deeds, brokerage for purchasing shares and other associated costs. SMSFs are also likely to incur a range of annual expenses associated with tax lodgements, audits and fees for ongoing administration support.
5. Asset and personal protection
The good news and the bad news. SMSFs may offer some protection from personal or business creditors with respect to assets held within the fund.
As a Trustee you are responsible for arranging personal insurance coverage (which may include income protection and total and permanent disability insurances) for super fund members. Additionally, if you currently have a retail or industry fund with a range of personal insurances associated with that fund, you may need to forego these insurances if switching to a SMSF.
At Robinson Voss partners we consider superannuation an integral part of achieving personal prosperity. As specialists in the SMSF arena, we focus on using super to help our clients make the most of opportunities to accumulate assets in a planned and tax-effective approach. We also provide audit services and tax and limited recourse borrowing arrangements strategy advice.
As Authorised Representatives of GPS Wealth, we are able to provide complete SMSF advice from rollover of other super funds, to set up, administration services and assistance with your investment strategy.
If you would like to discuss the most effective superannuation strategy for your circumstances and financial goals, or if would like a second opinion, we encourage you to make an appointment. Contact us today on 03 9708 8801 or email firstname.lastname@example.org
Robinson Voss Financial Pty Ltd T/A Robinson Voss Partners is a Corporate Authorised Representative (No 001263089) of GPS Wealth Ltd | AFSL 254 544 | Australian Credit Licence 254 544 | ABN 17 005 482 726 | www.gpswealth.com.au
General Advice Warning: The information contained within this document has been provided as general advice only. The contents have been prepared without taking account of your objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned in this document, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.