Setting Up Your Own SMSF: Take Control of Your Retirement and Wealth

What is an SMSF?

A self-managed superannuation fund (SMSF) is a type of superannuation fund where the trustee of the fund is usually also the members of the fund. It allows individuals more control over their retirement pension investments while taking advantage of the tax concessions available through the system. SMSFs can help individuals manage their investments and have greater control over their retirement assets.

Here are some of the main features of an SMSF:

• The members of the fund are generally the trustees or administrators of the fund.
• The trust is operated for the sole purpose of providing long-term retirement benefits to members.
• It is generally regulated by the Australian Taxation Office (ATO).
• Access to increased investment flexibility including holding a variety of assets such as stocks, property, offshore assets and more.
• The possibility of greater tax efficiency, depending on the investment mix.

When considering setting up an SMSF it is important to remember that the trustee of the fund must comply with the Superannuation Industry Act 1993 and the regulations and policies associated with running a SMSF. Those considering an SMSF should also ensure that they are equipped with the knowledge and resources necessary to manage the fund effectively.

For those considering an SMSF, it is important to seek advice from a qualified professional and understand the associated costs and risks. Professional advice should be sought on all aspects of the SMSF to ensure that it meets individual needs.

Key points to remember

• Self-Directed Super Funds (SMSF) offer a range of benefits and flexibility for retirement planning.
• Consider the costs, benefits and time involved in creating an SMSF.
• Understand your responsibilities as trustee of the fund.
• Seek professional advice on all aspects of SMSF.
• Explore and understand the rules and regulations that govern SMSFs.

What are the benefits of an SMSF?

There are many financial and lifestyle benefits offered by creating a super self-directed fund (SMSF). An SMSF gives you more control over your super funds and retirement planning. It allows you to adapt your investments and strategies to reach your financial goals sooner.

Additionally, SMSFs offer members the opportunity to build wealth over time and create a solid retirement income. Here are some advantages and benefits of an SMSF:

• Increased flexibility in management and investment strategies
• Lower management fees, allowing funds to achieve higher returns
• Access to a wider selection of investments from both the Sharemarket and other asset classes
• Make regular contributions and easily track performance
• Greater control over the costs associated with fund management
• SMSF members are not subject to the same restrictions as other super funds
• The ability to buy and rent commercial and residential properties

It is important to note that setting up an SMSF is a major investment decision and it is not for everyone. This requires careful research and due diligence to ensure the structure and mix of assets is right for your situation. It is also recommended to seek financial advice from a professional before proceeding.

What type of investments can I make with an SMSF?

An SMSF gives you a diverse range of investment options, from cash to stocks to bonds and unit trusts. The main benefit of an SMSF is that it allows you to direct your investments, giving you control over your retirement savings. Here are some of the common investments you can choose to make with an SMSF, along with some tips.

• Cash: Cash investments, such as time deposits and bank accounts, can offer attractive returns and offer the possibility of short-term liquidity. When investing in cash, it is important to consider the interest rate and other fees associated with the investment.
• Equities: Equities can provide portfolio diversification, helping to reduce risk and potentially increase returns. Look for quality investments with a proven track record.
• Bonds: Bonds provide the opportunity to earn regular income while diversifying the SMSF’s investment portfolio. Consider the credit rating of the bond issuer, as this will determine the quality of the bond.
• Unit trusts: Unit trusts are a pooled investment strategy that provides access to different types of investments, at a fraction of the cost of purchasing the underlying assets. They provide an opportunity to gain exposure to more diversified sectors, such as emerging markets and commodities, which may not be available to the SMSF. Be aware of the costs associated with investing in unit trusts.
• Property: Investing in property can provide a source of income and capital growth, although it is important to be aware of associated costs, such as stamp duty and agency fees.

When investing with an SMSF, it is important to ensure that you are making the best decisions for your situation. Speak to a financial planner or accountant to discuss the best investment strategy for you.

How to configure an SMSF?

Setting up a self-managed superannuation fund (SMSF) requires careful consideration and is something you should seek professional financial or accountant advice on. Here are some tips and steps to help you set up an SMSF:

• Research: Research all aspects including costs, benefits and time involved. You are ultimately responsible for the SMSF and its performance, so it is important to have an understanding of your obligations.
• Choose a trustee: An SMSF must have a minimum and a maximum of four individual trustees. You can act as a trustee yourself or alternatively you can appoint a company as a corporate trustee, where the directors of the company become the members of the SMSF.
• Structuring: You need to decide how the SMSF will be structured, i.e. which members are in the fund, who is the trustee, and who is the investment protector/manager. You should also consider the responsibilities of each party.
• Choose an Accountant/Financial Professional: Look for an experienced accountant or financial professional who specializes in SMSFs. They can provide advice on how to structure your new SMSF.
• Bank Account: Open a dedicated bank account for the SMSF.
• Register the fund: Register your SMSF with the Australian Tax Office by filing a Super Fund registration form. When you register the fund, you will receive an SMSF Superannuation ID (USI).
• TRUST ACTION: Your SMSF’s deed of trust will outline the roles and responsibilities of the participants. This is the primary legal document for your SMSF trust.
• Internal Asset Testing: Make sure your SMSF meets the internal asset test limit. This limit restricts the amount of investment in “internal assets”, such as real estate leased to an associated company.
• Invest: Evaluate your SMSF’s investment strategy, including its objectives, risk profile and liquidity requirements.
• Taxes: Make sure you understand relevant tax laws and regulations and have processes and controls in place to manage tax compliance.

It is important to always explore and understand all the rules, risks and regulations that govern SMSFs. It is advisable to take financial advice before making decisions.

What are the costs associated with running an SMSF?

An SMSF incurs costs to operate. These cover investment costs, legal and accounting costs, investment costs, audit and tax costs, insurance costs and other miscellaneous costs. Below is a list of each type of cost associated with an SMSF:

• Investment costs: These are the costs incurred when investing funds. This includes buying and selling assets such as stocks, property and other investments. These fees may include brokerage fees, investment management fees, stamp duties and other transaction costs.
• Legal and Accounting Fees: It is important to seek legal and accounting advice to ensure that the SMSF is set up and operated in accordance with the law. Fees for legal and accounting advice typically range from 0 to ,000 per year, depending on the complexity of the SMSF.
• Audit and Tax Fees: All SMSFs are required by law to have their accounts audited annually. This auditor must be registered with the Australian Securities and Investments Commission. The cost of this service varies depending on the type of audit, but generally ranges between 0 and ,000. On top of that, there are annual tax filing fees, which can range from 0 to ,800.
• Insurance costs: Depending on the type of SMSF and its investments, trustees may need to take out insurance policies to cover the asset. This could include life insurance, income protection insurance or other policies. The cost of these policies varies depending on the insurer, but can range from a few hundred dollars to thousands of dollars each year.
• Miscellaneous Fees: Other costs associated with running an SMSF include periodic asset assessments and SMSF setup fees. It can cost around 0 per assessment and up to ,000 for the initial setup, depending on the complexity.

When considering all of these fees, it’s important to remember that an SMSF is designed to provide long-term benefits, such as potential tax savings, over the life of the fund. Therefore, it’s usually not a good idea to just focus on initial setup costs, but rather think about the true cost to run the SMSF over the life of the fund.

What are the rules and regulations for an SMSF?

A Super Self-Directed Fund (SMSF) is an Australian regulated trust structure to provide members, usually small groups of people, with additional retirement savings. Certain rules and regulations must be observed when running and maintaining an SMSF. These include:

• Fund members must be trustees or directors of the Company or directors of the Corporate Trustee.
• No member can control the fund.
• Each member should be allowed to have their own individual interests.
• The fund must have a trust deed outlining the structure, powers and responsibilities of the trustees and its members.
• Directors must be “fit and proper” and reside in Australia.
• Regular reports of compliance must be submitted to the Australian Revenue Service.
• Member accounts must be held in individual names.
• The Fund must comply with the limited rules of the Recourse Debt Arrangement.
• The fund is to be used exclusively for the purpose of providing retirement benefits after members have reached preservation age.

Advice:

• Make sure you understand the rules and regulations of running an SMSF, including any changes in legislation.
• Be aware of the optimal asset classes to enable diversification of your investments.
• Regularly monitor investment performance and ensure assets are held appropriately.
• Ensure that all members comply with their obligations as trustees or administrators of the fund.
• Regularly review investment tax positions, taking into account changes in legislation.
• Keep detailed minutes of meetings and decisions made by directors.

How do I access funds from an SMSF?

Depending on the structure of an SMSF, funds are accessed in several ways. Here are some examples of accessing funds from an SMSF:

• Pensions or Transition to Superannuation (TTR) – Once a member reaches preservation age, they may incur a pension or a TTR pension, depending on their circumstances. With a pension, members can withdraw a regular payment or a lump sum.
• Payment of benefits under member benefits – This could be in the form of death benefits, disability benefits, early retirement benefits, etc.
• Take a lump sum payment – this involves members withdrawing some or all of their benefits as a lump sum.

When accessing funds from an SMSF, it is important to keep in mind that superannuation benefits accessed before age 60 incur tax on the taxable portion of the benefit. It is also important to ensure that all payment requirements and all relevant legal, regulatory or tax requirements are met. It is necessary to seek advice from a financial adviser or an accountant experienced in superannuation.

Conclusion

Setting up an SMSF requires careful consideration before taking action. It is important to understand your obligations, explore the costs and benefits, and seek professional advice before proceeding. Having an SMSF in place can provide greater control and flexibility over retirement investments and can help individuals achieve long-term financial goals.