Most Australians have a third party manage their superannuation fund. While you have some control over the level of risk with these platforms, it’s up to the fund to grow your money and look after your investment. For a more hands-on approach to growing your superannuation you can look to set up a Self Managed Super Fund (SMSF) to make sure you’re getting the most out of your superannuation.
What is a self-managed super fund (SMSF)?
A self-managed superannuation fund is a privately owned and operated retirement fund. As with retail or industry super funds, your employer will allocate your superannuation guarantee money into it, but rather than have the money invested for you, you choose your investments and manage them yourself.
It provides the potential to assign assets that are more in line with your investment goals and personal values. While you will have to pay for your fund’s set-up and maintenance you can save money on fees and get bigger returns by pooling super with other parties with up to six individual members allowed.
How an SMSF works
An SMSF works in the same way any Australian retirement fund works, with your employee adding funds to an assigned trust for you to access when you retire. The funds in your trust are allowed to grow through the benefits of various investments. With a self-managed fund you get to choose what assets you invest in and maintain it yourself which could be any mix of shares, bonds, property or commodities, to name a few.
How to set up an SMSF
Your SMSF will be treated as a business so setting it up requires you to create an ABN, tax file number and bank account.
Once you have the required accounts you and any other parties will need to sign a trustee declaration within 21 days. This makes consent to be binding. You will also be required to register the fund with the ATO within 60 days and have a deed drawn up and signed.
There are ongoing maintenance responsibilities you will be legally required to meet so reading the fine print and understanding your obligation is essential for correct tax lodgments, audits and asset evaluations.
Benefits of setting up an SMSF
For many SMSF trustees, the main benefit of setting up an SMSF is having total control over their investments. For those who have the skill and time to invest towards managing their own superfund, it can feel more satisfying to have financial independence.
A self-managed fund allows you to choose from a wider range of investments including property, cash, equities, managed funds and start-ups to match investments to your risk appetite, investment goals and personal preferences.
SMSF regulations
SMSF regulations are numerous and strictly enforced by the ATO. Reading through the guidelines is an essential first step.
For example, all purchases and sales must reflect the true market value. You need to make sure the assets you choose are commercial and distant – so you can’t invest in a property or company owned by someone close to you, such as a business owned by your family.
It is the SMSF owner’s responsibility to lodge tax, keep accurate records of transactions and know the changing value of your investments through annual audits and asset assessments.
If you are ready to own your investments and take charge of your retirement funds, ask an experienced professional for advice and support. They can help navigate the regulations and help decide if an SMSF is the best path for your future wealth.
