The Australian Tax Office, which regulates self managed super funds (SMSFs), says over 1 million Australians have their retirement savings invested in one of the nation’s 557,000 SMSFs.
You could be thinking about starting your own self managed super fund and it is a decision that should be considered carefully. There are benefits to using a SMSF, however there are also some items which you need to consider to make sure that it is the right option for you. Let’s take a look at the superannuation rules and other things that you need to know.
Using a self managed super fund can give you more control over how your superannuation is invested. But you may not have as much freedom as you think. Notable restrictions apply to what SMSFs can and cannot do.
Importantly, self managed super funds cannot lend to fund members or relatives and fund assets must be kept entirely separate from members’ personal assets. That’s because the overarching rule is that your SMSF must invest for the benefit of your retirement.
Breaking any of these rules could see your SMSF facing tax penalties, or lose its tax concessions, which could have an impact on your super balance for your retirement. In addtition, penalties could be imposed on the members for breaching the rules.
With a professionally managed superannuation fund, you can expect to pay fund fees. However running your own self managed super fund could involve considerable upfront and ongoing costs associated with establishing a SMSF, ongoing compliance and administration fees and investment expenses like brokerage on shares.
If you have a small superannuation balance, running your own self managed super fund could end up costing you more in fees and charges than investing your super in a professionally managed fund. The Australian Securities and Investments Commission has suggested that you should have at least $200,000 in superannuation before a self managed super fund is cost effective, however, the actual number will depend on the fund’s facts and circumstances.
Every member of a self managed super fund is also a trustee, and that means each person is responsible for meeting the tax and legal requirements that SMSFs face and could be subject to penalties if these requirements are not met.
You may be comfortable about meeting these obligations now, but staying abreast of the fund’s legal requirements could become more onerous when you are older and hoping to enjoy retirement.
The bottom line is that your super is too important to leave to chance. Think carefully about the decision to use a self managed super fund, take advice from experts and weigh up the costs versus the benefits that will help you achieve a rewarding retirement.
This information is current as at 15/08/2016.
This information has been prepared without taking account of your personal objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.
This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice.