If you’ve been interested in retirement savings in Australia, we can almost guarantee you’ve heard of the smsf. Do you know what it is or how it would benefit you, though? Keep reading to find out.
SMSF stands for a self managed superannuation fund. They come with a host of benefits, but some downsides too, and you should make a careful decision as to whether they’re the right investment tool for you.
Benefits SMSF offer.
The self managed superannuation fund gives you total control over your investment options. You can use the investment strategy that works best for you and control where it is investing. It also lets you invest in a wider choice of investment products then before, from collectables to listed shares. Because you can have up to 5 members, the balances you all share can be consolidated and have one single super for the family. This may give you extra asset flexibility and purchasing power as well as assist with estate planning and reduce costs. It will also let you use fund cash and borrow to make larger investments. Lastly, but very importantly, an SMSF offers considerable tax savings by allowing you great control over the timing of the tax events- without having to worry about capital gains tax. You can also transfer your own assets and property into the SMSF. All in all, it offers a range of flexibility and positive features- including a wider ability to choose who will benefit from your super in the event of you death.
What do you need to set up a super?
The members of the fund will need to be the trustees as well, and there will be a number of legislations and compliance laws you will need to meet. The assets in the fund will all need to pass the so-called ‘sole purpose’ test, where they are held purely for the purpose of providing retirement benefits to beneficiaries. You will need to have a defined and forward-looking investment strategy for the fund, and be capable of separating the find assets form personal or business assets you may hold, as well as the assets employers contribute to the fund. You will also need to be well prepared to handle the record keeping needed from the fund. It will have to include financials, tax compliance, audits and actuarial certificates if needed as well as the keeping of minutes for all decisions and meetings you hold. The fund is forbidden from lending money or any other assistance to relatives and members can only borrow money in limited circumstances such as purchasing assets [and then only using arrangements that protect the fund]. Money cannot be released to members except under very specific conditions.
How do I know if an SMSF is right for me?
To make an SMSF work, you need skills, time and the knowledge to run it and meet legal/tax obligations. You need to be able to benefit from the benefits it provides, and have a super that will make it cost effective [$350000 is a ballpark figure].
Overall, an SMSF can be a valuable retirement vehicle in the right hands.