Want to take control of your superannuation savings? Many small business owners have left traditional industry and retail super funds for the greener pastures of a self-managed super fund (SMSF). But making a SMSF work requires a high level of financial and legal knowledge, and a significant time commitment. Here’s what you should know before setting one up.
What is a self-managed super fund?
There are three types of superannuation funds:
1. Industry and retail super funds: These are set up for a particular industry or profession. Managers are employed to make decisions on how to invest your super savings to achieve the greatest returns.
2. Retail super funds: These are run by private financial institutions and they’re often public companies run for the benefit of shareholders.
3. SMSF: This is a private superannuation fund regulated by the Australian Taxation Office (ATO), but under the direct control of its creator. That means that, if you set up an SMSF, you (and any members), decide how to invest your superannuation and, in turn, are the sole beneficiary of your investment wins.
How does it work?
Essentially, an SMSF is a type of legal tax structure that can have up to four trustees. The trustees of the SMSF pay super contributions into the fund, decide how these contributions should be invested, and manage the fund’s expenses, insurances, and records. It’s worth mentioning that if you set up an SMSF, you’re liable for all decisions made by the fund, even where financial or legal advice has been provided by a third party or another member has made the decision.
What are the benefits?
There are a number of benefits to managing your own SMSF including:
- Control: The obvious benefit of an SMSF is having greater control over your retirement savings. Rather than letting a fund manager set your risk profile and make decisions on your behalf, you act as your own fund manager.
- Choice of investments: You can also choose investments aligned with your business’s goals, such as property – which can be purchased as business property – shares, and even cryptocurrencies.
- Tax benefits: As with all super funds, SMSFs benefit from concessional tax rates, meaning members can claim income tax deductions for their super contributions, provided they don’t exceed the yearly cap.
- Flexibility: Trustees can quickly respond to changes in market conditions, super rules, and personal circumstances – adjusting their investment mix as and when they need to.
Things to consider before setting up a SMSF
While SMSFs are an attractive option for some business owners, they’re not the best choice for everyone. You often need substantial super savings (or consolidated super savings) to justify the cost of setting it up and keeping it running. As a starting point, you need to be confident in your investment knowledge and your ability to accurately measure returns. And, as a trustee or director, you’ll need ample time to ensure the fund is compliant with all its legal and tax obligations.
If you have the investment expertise and time to commit to managing an SMSF, then it could be a smart option for your retirement savings. But, considering its complexity, it’s a good idea to seek advice from a professional advisor before you take the leap.