While retiring may be the end goal for most Australians, it also means that you will no longer be receiving a regular income. There are many Government initiatives designed to encourage individuals to save for their retirement; the biggest being the implementation of compulsory contributions to Superannuation over the course of an individual’s working life at a low tax rate.
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A SMSF offers the following benefits:
Compared to other superannuation funds, SMFs offer more investment options. Apart from some limited exceptions, SMSFs can invest in virtually anything if it meets the sole purpose test and complies with the regulations. Such investments include real estate.
An SMSF can also borrow to buy an asset, however this is becoming increasingly difficult due to the removal of the SMSF loan products by many banks.
Small business owners and self-employed individuals are attracted to SMSFs because they can purchase commercial real estate. Their business can then rent this property at the prevailing market rate.
SMSFs may invest in art, collectibles, gold, and some unlisted entities. In order for SMSFs to remain compliant with the law, these investments must meet strict criteria.
Flexible and controllable
A SMSF’s rules can be tailored to suit the specific needs and circumstances of its members since they are also its trustees. Another superannuation fund cannot do this.
Directly managing your own super investments enables you to react quickly to changes in the market and to take advantage of sudden investment opportunities.
Managing taxes effectively
With a SMSF, you can more easily plan out tax strategies that benefit you and your circumstances. As with other superannuation funds, SMSFs are subject to the same tax rates as others.
When you are both a trustee and a member, you have a better understanding of your super monies and their performance. Due to their size, industry and retail super funds do not release investment performance until many months after the fact due to the aggregation process.
An SMSF administrator should use software that lets you track the value of your super regularly, and give you access to up-to-date information whenever you need it so that you can track the outcomes of your decisions and make your fund management easier.
Fund management costs
SMSFs were traditionally only used by the wealthy due to high set up and ongoing compliance costs. Thanks to advances in technology and competition among service providers, SMSFs are now a more cost-effective option for most.
You will incur costs associated with your SMSF based on what professional support you engage.
A SMSFs operational costs are mostly fixed. Consequently, a fund’s costs will generally decline as its value increases. As opposed to Industry or Retail Super Funds, where costs are usually based on the total balance of your account.
Joining forces with others to pool your super
Up to three people can pool their superannuation in an SMF. As a result, individuals may be able to invest in things they might otherwise not be able to, such as direct property.
Superannuation cannot generally be accessed by creditors. If someone has deliberately transferred assets into a SMSF to escape paying their creditors, clawback laws may apply.
Despite their many benefits, SMSFs may not be suitable for everyone. SMSFs may have the following disadvantages:
A trustee’s duties and responsibilities
If you ‘self-manage’ your retirement savings, you are responsible for all investment decisions, as opposed to outsourcing them to an investment manager in an Industry or Retails Super Fund. In this regard, trustees should ensure that they have a reasonable understanding of investment options and markets, as poor investment decisions have a direct impact on the assets of the fund as well as the retirement savings of other members. Not everyone has this expertise.