A self-managed super fund (SMSF), or also known as do-it-yourself super fund, is a type of superannuation fund that gives investors an opportunity to completely control their retirement savings. It’s one of the most common types of superannuation funds and considered now as one of the fastest growing types of investment in Australia. Aside from having greater control over your own investments, SMSF also gives you wider investment options, retirement benefits, as well as security and peace of mind because it provides payment to your beneficiaries, in the event of your death.
Members of SMSFs are responsible for delegating an approved auditor, and may choose to appoint tax agent, financial adviser, or accountant to better manage their funds. However, even though professional advisers and accountants are engaged to assist the members, the members (trustees) are still responsible for the entire operation of their SMSFs.
What are the advantages of SMSFs?
SMSFs provide greater benefits than other types of super funds, making them an ideal option for those who want to save for their retirement. These include:
- Control – With an SMSF, you can decide how you invest your retirement savings and how much money you want to put into it.
- Flexibility – With an SMSF, you’re able to invest in a wide range of assets, including shares, property, managed funds, and bank deposits. In addition, you’re also able to modify those investments if you want or need to.
- Tax advantages – SMSFs have the lowest tax rates in Australia. And the best thing is you can reduce it even further by using effective financial planning strategies.
- Cost savings – You can control the amount you wish to put into the funds by deciding what services you want to pay for. And the great thing is as you grow your super balance, your SMSF becomes more cost effective.
- Death benefits – SMSFs provide funds to beneficiaries, in case of the trustee’s death. And the best thing is it can still continue even after your death.
What are the disadvantages of SMSF?
Just like everything in life, SMSFs also have some disadvantages. And these are:
- Responsibility – As a trustee, you’re fully responsible for the operation of the fund, even if you acquire help from the experts.
- Time-consuming – Operating and managing your own self-managed super fund can be time-consuming.
- Risk of tax penalties – If you fail to comply with the tax laws, you may subject to pay tax penalties, which are usually set at the highest marginal tax rate. For serious breaches, you can face civil and criminal sanctions.
What are the requirements of an SMSF?
To setup an SMSF, you must meet the following conditions:
- The fund must have fewer than five members
- All members of the funds must be trustees
- A single-member fund must appoint a company or a second person to act as a trustee
- No fund member can be an employer of another fund member, unless they are related
- No trustee from the fund receives any remuneration from the fund
Talk to experts!
Indeed, SMSFs can be a great a great investment if you know what you’re doing. But whether you want to establish your own SMSF or still unsure about it, you may want to talk to a professional financial planner to know your options.