Australians can now choose to put their super contributions with an independently managed super fund or with their own self managed super fund (SMSF).
Self managed super funds(SMSF), also called DIY Super, perform the same role as other super funds – super contributions are invested into this super fund, which is then made available to you upon retirement. However, the key difference with a SMSF is you can decide what you invest in and when your benefits are paid, as long as you comply with Australian superannuation law.
Some of the key features of a self managed super fund (SMSF) include:
• A SMSF must be maintained for the 'sole purpose' of providing benefits to members upon their retirement
• Trustees are required to prepare and implement an investment strategy for their self managed super fund. This controls the way contributions are invested
• Wide flexibility in investment choice, for example, direct property (residential property, commercial property or rural property), managed investments and direct shares can all be included in the portfolio
• Approved auditors must be appointed and tax agents, accountants and financial planners may also be involved in the running of the self managed super fund
• Ultimate legal responsibility rests with the individual trustees (members of the super fund), even if assistance is outsourced to the above financial professionals
Managing your own super fund ultimately gives you greater control and flexibility. The discretion to pick and choose your own strategy and investments, as well as the tax benefits of superannuation make self managed super funds a unique investment tool.
There are two major benefits to a self managed super fund:
SMSFs can be very cost effective, but it really depends on the type of investments you hold and how frequently you change those investments. A SMSF will cost in the range of $1,500 to $2,500 each year to 'maintain'. Therefore, if you have $250,000 in your SMSF, the total maintenance cost is in the range of 0.60% to 1.00% which, depending on the investment strategy of your SMSF can be very cost effective.
A particularly positive aspect of having your own SMSF is that there are a number of fixed costs that don't increase depending on the size of your super fund. For example, the cost of auditing your super fund and preparing the super fund's tax return will probably be the same, whether you have $250,000 or $2.5 million.
The key here is to compare the costs of different strategies – whether an SMSF, an industry superannuation fund, or a retail superannuation fund. You have to do the homework, together with your financial planner.
With your own SMSF you have control, subject to the super fund's investment strategy and the technical rules about SMSF investments, over what you invest in, when you invest and when you change your investments.
Whether this level of control is for you - only you - together with your financial planner, can decide. Some people feel more comfortable being able to control their superannuation investments. For others, they would prefer to have their investments professionally managed. If you have the experience, knowledge and confidence to manage your SMSF's investments, then having your own SMSF can be a very rewarding challenge.
When should a self managed super fund be used? It is not for everyone
A self managed super fund can be an appropriate vehicle if you want the flexibility to manage your own superannuation investments directly. However, having an SMSF is not for everyone, and using an industry superannuation fund or a retail superannuation fund may provide you with sufficient flexibility and cost-effectiveness. It's your choice and we recommend you speak to a financial planner to decide whether a SMSF is the best option for you.
What's involved in setting up and running a self managed super fund?
It is reasonably easy to set up your own SMSF. Your financial advisor can help you, or you can do it yourself.
If you have decided to have a company as trustee, you will need to register the company to be the trustee and obtain an SMSF trust deed. This normally costs around $800 to $1,500 and takes about one week. There are many businesses that sell SMSF trust deeds.
You will need a deed that is fully up-to-date with the laws and that provides maximum flexibility. For example, the deed should permit the super fund to borrow. Then you will need to apply for a Tax File Number, an Australian Business Number, and you will have to establish a bank account in the super fund's name. Once all this has been done, you might like to roll over your existing super accounts into your new serlf managed super fund and change your payroll details, so that your employer can contribute into the new super fund.
You will need to appoint an accountant and auditor (probably from the same firm) to prepare your SMSF accounts, tax return and audit every year.
Once your SMSF has been established, you need to manage it and its investments, and in particular, keep proper records of all transactions. This will be essential if your SMSF is ever audited by the Tax Office.
At least in the beginning, we recommend you seek professional financial advice, whether from your financial planner or your accountant.
Professional financial advice is critical
Although there are many advantages to a self managed super fund, it is important that you seek professional financial advice from a certified financial planner first to establish whether this is right for you.
Talk to your Intellichoice financial planner on 1300 55 10 45 about establishing, managing, administering and forming your investments strategy with a self managed super fund. Alternatively, view the superannuation FAQs for more information about super and self managed super funds. If you are thinking of buying property with your self managed super fund, you can speak to the mortgage brokers at Intellichoice Financial Services. Our mortgage brokers can assist with your SMSFhome loan.