To SMSF or not to SMSF?

I have been asked recently, ‘What are the advantages of a SMSF for me?’ The person posing the question had all the pre-cursors I look for when advising whether a SMSF is right for a client, and while everyone’s personal situation is different, I thought I would give you some insight into what a SMSF is and what the potential advantages are.

So, what is a SMSF? Basically, a SMSF is a superannuation fund, where the trustees of the fund have control over the fund’s decisions, so that it can be specifically tailored to meet the members’ needs. A SMSF can only be established for the sole purpose of providing financial benefits to members in retirement and ultimately, to their beneficiaries. A SMSF can have one to four members, where all members are trustees (or directors of a company trustee) of the fund. The trustee of the fund can be either a company or individuals, where:

  • Company – all members of the fund are directors of the trustee company. This type of trustee provides simpler administration, as the investments of the fund are recorded in the name of the company. There are also additional advantages of using a company trustee compared to individual trustees that we will go through in a later blog.

  • Individuals – all members of the fund are appointed as trustees of the fund and there is a minimum of two individuals trustees required.

The main advantage of a SMSF, is that the trustee has control over the fund and how the fund’s money is invested. The other advantages include:

  • More investment choice – The big advantage here is that a SMSF can invest in direct property, where other super funds can’t. The trustee also can invest in specific shares, managed funds, etc that may be unavailable in their non-SMSF superannuation fund (ie, some super funds have set investment portfolios that are unable to be tailored).

  • Flexibility - SMSFs allow members to have multiple accounts ie, they can provide a member both accumulation phase and retirement phase within the one fund.

While SMSFs have many advantages, it is important to note that they are not for everyone. Some of the disadvantages include:

  • A recommended minimum balance before the fund starts. The general rule of thumb is that the SMSF requires a balance of around $100,000 to $200,000 to make it cost effective. However, if you don’t have this much in super, it doesn’t mean that you can’t have an SMSF. It might mean that you have another reason to start a SMSF, ie, direct property investment, etc.

  • The fund needs to take into consideration its insurance requirements, ie life insurance and TPD for the members.

  • The time required to self-manage your own superannuation fund and being able to make the investment decisions that are associated with having a greater control over your retirement benefits. This doesn’t mean you can’t get help with making investment decisions, but you are ultimately in control of running and operating the fund.

If you have been considering self-managing your super, give me a call on 0438 018 348 and we can discuss your individual situation and whether a SMSF is right for you.

General Advice Warning – The information in this article is educational and general in nature. It does not take into consideration your personal financial information, goals and objectives. Please ensure you seek appropriate financial and taxation advice.

self managed superannuation fund smsf