Is your superannuation just an unopened envelope in your top drawer? It may be time to take a more proactive approach to your super and ultimately, your retirement. Have you been thinking of setting up an SMSF but are unsure what are the important things to consider?
While hard work and pursuing greater career goals can be rewarding, relying solely on one job for financial security is not enough. Many professionals seek to build additional wealth through investments in real estate, stocks, bonds, and more.
Thanks to the superannuation guarantee, every employee in Australia can grow their retirement savings. But, setting up a well-managed superannuation strategy through an SMSF can offer greater control over these funds. An SMSF is a type of superannuation trust that you manage yourself, and the trend of people taking control of their super in this way is growing rapidly.
While an SMSF comes with many benefits, it also has greater responsibilities and risks compared to a standard super fund. Before making the decision to set up an SMSF, it is wise to consider and answer some questions to determine if it is the right financial move for you.
1. Why Do You Want to Go For an SMSF?
Every working individual in Australia is entitled to receive superannuation from their employer which is calculated at 10% (2022 year) of their ordinary times earnings. Generally, most Australian’s have their superannuation with an Industry Fund or a Retail Fund.
A SMSF may make sense for you if you want to take complete charge of your investment decisions, though it’s worth consulting with Financial Planner or an Accountant who specialises in SMSF structures to help you gain deeper insights into the advantages and responsibilities associated with operating your own super fund.
The most common types of investments via a SMSF include:
Shares
Managed Funds
Residential Property
Commercial / Industrial Property
Bullion
Cryptocurrency
Term Deposits / Bonds
A popular tax effective strategy for business owners is to have their business premises owned by their SMSF, which is leased to the business and rent is paid to the SMSF at commercial rates. Note, members of a SMSF can not live in or use residential property their SMSF owns.
2. Are You Setting Up an Individual or Shared SMSF?
Regular superannuation funds are given to each employee, but an SMSF allows individuals to set up a balance with other people, such as a partner and family members.
Having up to a maximum of 6 members enables you to drive up your valuable assets and save on consolidation fees, but it can also be more complicated to share the same responsibilities. For instance, handling a shared SMSF can get even more complex if one member decides to close the fund or investment decisions can’t be agreed upon.
3. Can You Handle the Added Responsibilities of Managing an SMSF?
Whether you plan on setting up an individual or shared SMSF, both scenarios involve taking on more responsibilities that can challenge your knowledge of investment management and compliance with relevant governing legislation. You’ll need to do thorough research on the
possible investment options for you or use a Financial Planner to assist you. It is also important to record and track the performance of all assets within your SMSF.
There are other factors to consider depending on the type of investment asset you choose, such as the added task of buying, maintaining, and securing tenants if you’re planning to invest in real estate with your SMSF.
Annual financial statements and an independent audit of the SMSF is also required. Due to the annual costs of administration, it is important to way this up with the overall investment return and do a cost benefit analysis.
The Bottom Line: Is Setting Up an SMSF the Right Plan For You?
Handling an SMSF comes with plenty of pros and cons, so it’s important to understand what you’re getting into before jumping the gun. SMSF has the potential to boost your wealth, but it involves carrying more responsibilities than an average investor.
The good news is that seeking aid from an SMSF expert can make the process easier as they can take over the compliance, administration, and preservation of your SMSF.
Managing your accounts, books, and other factors in your finances can be overwhelming, but it doesn’t have to be a daunting process. Get a reliable business accountant who can simplify all money matters in your venture and guide you with your compliance obligations.
Are You Looking for Accounting Firms in the Sunshine Coast?
Wardle Partners can help take the guesswork out of your finances and taxes. Celebrating 40 years helping people, our business accountants in the Sunshine Coast specialise in self-managed superannuation and are also experts in tax minimisation planning, business compliance, self-managed superannuation, business structuring, and more.
Get in touch with us and see what we can do to advise you and keep you on top of your financial health in more ways than one.
