A self-managed super fund (SMSF) refers to a private super fund that you manage yourself. It is a way of saving for retirement, but the distinction between an SMSF and other retirement funds is that the members of an SMSF are the fund’s trustees. Therefore, the members contribute to it for their benefit and should comply with the involved tax laws. The best thing about SMSFs is that they give control to its members regarding how their retirement benefits are invested. The trustees manage the fund through a documented investment strategy that guides them in making investment decisions. Here are the benefits of setting up an SMSF with Liston Newton.
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When it comes to SMSFs, you are spoilt for choice in investment options. All the trustees or members can easily access direct shares, income investments, international markets, high-yielding cash accounts, unlisted assets, term deposits, collectibles, among others. Generally, SMSF trustees have greater control over their funds’ investment. They choose to invest in many of the products available to public funds and those that are not. For instance, while many public funds’ members are restricted to property trusts, in SMSFs, members can invest in residential real estate directly or buy a commercial property for leasing to a related party.
SMSFs that are super legislation compliant generally benefit from concessional tax rates. During the accumulation stage, tax on investment income is usually capped at 15%, while in the pension stage, no tax is payable, even the capital gains tax. The superannuation rate can be a tax-effective investment channel. Furthermore, all the benefits achieved by a member over the age of 60years are tax-free. Therefore SMSFs can favorably leverage tax strategies around taxable income, capital gains, and franking credits. That helps you as a member to grow your super savings and minimize tax charges as you transition to retirement.
SMSFs provide transparencies that allow the trustees to make investment decisions based on their personal goals. Whether you are interested in shares, property, sustainable or ethical investing, an SMSF fund works in such a way that you understand where your money is invested. Again, you have complete visibility over tax treatments and performance.
The more you grow your SMSF, the more cost effective it becomes. Typically, SMSF trustees must pay ATO fees, usually capped and not based on a percentage of their super balance, and initiate an annual tax return and audit. However, the overall cost of running an SMSF depends on the other related investments and any additional costs of engaging professional services.
SMSFs are flexible in that they allow several members to run a combination of pension and accumulation accounts. That way, as a member, you can adjust your investment mix as you wish. That facilitates fast response to personal circumstances, market conditions, or super rules.
Currently, an SMSF allows a trustee to consolidate their superannuation assets with three other members who can be family, friends, or partners. The benefit of consolidating super accounts is that it creates a substantial fund balance, which increases investment opportunities and the fund’s assets through only one set of fees.
Before establishing an SMSF, it is crucial first to understand the other risks, such as trustee responsibilities that come with it. That is important when making your investment decision.
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