Are you looking to safeguard your future?
Anyone that wants to ensure their retirement savings are well managed should consider a self-managed super fund, also known as a SMSF.
Although SMSFs offer distinct advantages, there are things you’ll need to think over prior to making a commitment.
Knowledge is power when it comes to your financial decisions. Knowing whether you should invest in a SMSF or not can make a huge difference in your twilight years.
Here are 8 things SMSF trustees should keep in mind.
1. You’ll need to pay close attention to your super
One of the benefits of a SMSF is that it can give you increased control over your retirement funds.
However, this means you’ll need to spend time making sure your SMSF is properly managed.
You’ll also need to be sure you’re making the right decisions when it comes to investments.
Even though you won’t be doing this on your own, you’ll be the one who has control. Ultimately, you’ll hold full responsibility for the operation of your SMSF.
2. Managing a SMSF requires administrative and legal responsibilities
As a Trustee, you’ll be expected to handle the administration, maintenance, and development of your investment strategy.
When handling your SMSF, you’ll need to make sure you follow restrictions to the letter. If you don’t follow all rules and regulations, particularly regulations related to tax, you could be disqualified from being a Trustee or face financial penalties.
There are specialists that can provide you with assistance if you don’t believe you can handle these requirements on your own. However, even if you work with a specialist, you’ll be the one with responsibility for every aspect of your SMSF.
If you want to make sure you’re fully aware of SMSF regulations and obligations, you should consider enrolling in an educational course through the Australian Taxation Office.
3. Your SMSF will need to meet a minimum balance
A SMSF typically requires a minimum starting balance of $300,000.
It’s then expected that your initial funds will grow over time. There are costs associated with establishing a SMSF though, such as creating a company that can serve as a corporate trust and obtaining a trust deed.
There are also costs you’ll have to cover over a longer period of time, including:
- investment and ATO fees
- your annual tax return
- the cost of an independent audit
In addition to these expenses, you may be paying for professional-level SMSF support so that you can ensure you are managing your fund properly and complying with all regulations.
4. You’ll need to consult with a specialist if you want to move overseas
Only Australian residents can establish and manage SMSFs.
If you’re going to be living overseas for a year or more, you’ll need to talk to a specialist about this. The rules that the Australian Taxation Office has regarding living overseas are very strict.
If you don’t comply with these guidelines, you may face significant penalties or have your SMSF categorised as non-compliant.
5. Decide if insurance cover should be held in your current super fund
As an SMSF Trustee, you’ll need to determine whether or not you should hold insurance for every member of that SMSF.
Before transitioning to an SMSF, you’ll want to look at the insurance covers you currently have prior to closing or rolling over superannuation funds. There are advantages to replacing an existing insurance cover, but there are also potential costs. In order to find out more about the ramifications of this, you’ll want to seek insurance advice from a professional.
6. Stay aware of the mechanisms for disputes, complaints and compensation
When you’re managing a SMSF, it’s possible that complaints or disputes will crop up.
The Superannuation Complaints Tribunal isn’t accessible to SMSF trustees. However, it’s possible for trustees to access either the Credit and Investment Ombudsman or the Financial Ombudsman Service if they have an adviser that’s a member of one of these organisations.
Self-managed Super Funds don’t have the same protections via the Australian Prudential Regulation Authority that retail and industry super funds do. Because of this, if a Trustee experiences loss because of fraud or theft, they won’t be eligible to apply for compensation via the financial assistance program the government offers.
With a bonus tip for when dealing with disputes becomes overwhelming, corporate meditation expert Jo Amor notes that finding ways to separate yourself from your professional work can actually benefit you, she notes “everyone is under some kind of stress. Meditation provides the tools to manage work-stress so you can start benefiting from meditation with calm, creativity, clarity and contentedness. The result is renewed energy.”
7. You can decide how your SMSF is structured
When you establish an SMSF, you’ll need to decide how your SMSF should be structured. You can choose to establish a corporate Trustee or opt for an individual Trustee.
You’ll want to consult with a specialist that can talk you through the pros and cons of each type of structure. From there, you’ll be able to find an option that will work well for you.
8. If your SMSF is closed, you’ll need to develop your own exit strategy
It’s possible that you’ll want to end your fund in the future. If you decide to do this, you’ll need to have an exit strategy in place. This should simplify the process for you.
You’ll also want to make sure you understand all of the costs associated with closing an SMSF. Hypnosis trainers Mindset Mastery note that these scenarios should be understood upfront. They note “it’s easy to focus on the positive aspects of a major financial decision and hope for the best. However, letting your mind fully appreciate what could go wrong can ensure you are more resilient and focused going forward.”
If your SMSF isn’t cost-effective anymore, as an example, then it might be necessary to have an exit strategy in place. Before you close an SMSF, you’ll want to consult with a professional.
Are you looking for more financial support?
Wealth Path’s knowledgeable specialists are able to offer advice in many different situations, allowing you to make smart financial decisions.
If you would like guidance regarding SMSFs, you can count on the Wealth Path specialist team to talk through the requirements and risks with you. From there, you can decide what you’d like to do next.