Is a SMSF Right for You?

While do-it-yourself types of superannuation have been available for many years, SMSFs really have come into their own over the last few years. As far as the asset value and the number of SMSFs goes, it is apparent that the SMSF sector has a much larger presence among supers. According to asset value, they have also surpassed industry and retail super funds.

As much as SMSFs offer members great returns for their investments, they are hard work. For this reason, any potential member must be aware of what is expected of them in terms of cost and duty. This is why it is vital to know whether a SMSF is right for you before making the commitment.

A SMSF is a self managed super fund that allows one to four members. The members manage the fund as they are also the trustees. The members make all decisions, such as how it will operate and where the fund will invest within the parameters of the fund’s deed and the regulations set out by various superannuation authorities.

A key reason why individuals opt for a SMSF is the greater control they have. This is followed closely by the fact that they also allow greater flexibility with the choice of investments.

What to Consider

With greater control and greater flexibility comes greater responsibility. A strong commitment is needed to have a SMSF, as it takes time, knowledge and skill to manage it. Shouldering regulatory responsibilities such as administrative tasks and complying with laws is a large portion of the duties expected of the members.

Another big consideration for having a SMSF is that managing it costs money. SMSF members have been reported to be typically older individuals that earn an average to high taxable income. The operating costs vary significantly among SMSFs. The costs depend largely on the fund’s size, the nature of its assets and transaction values. Making use of third party assistance in the form of specialist help with managing the fund adds additional costs to the operating costs. Some additional costs involved, such as annual audits and tax, are compulsory. The operating costs are typically divided equally among the members of the fund.

Getting Started

Having a good understanding of the work that goes into managing a SMSF and the costs involved will help you decide whether a SMSF is right for you. If it is, there a few steps to take in order to set up the fund.

First, a trust deed must be obtained. This is the legal document that outlines the regulations that must be complied with, your rights as a member, and all obligations of each member. Once the trust deed has been obtained, trustees can be appointed. A declaration of responsibility must be signed and the trustees must then register with the ATO where an Australian business number and a tax file number will be issued. The final step is to open a bank account for the fund.