Is a Self managed Superannuation Fund Right For You?

Thinking of starting a self managed superannuation fund is a big decision: one that may not be right for everyone. Naturally, there are perks and there are disadvantages of any type of investment. So, in this guide, we will briefly consider the pros and cons of starting a SMSF.

First the basics:

What is a SMSF?

A self managed superannuation fund is like a trust fund that can help one plan for his/her retirement savings. However; unlike the other trusts, the trustees of a SMSF are the beneficiaries who run the fund for their own benefits.

SMSF

Benefits of SMSF

The key benefit of managing a SMSF is greater flexibility in investment options so that one gets to choose between corporate bonds, shares and other choices of investment. A member can also transfer his personally owned shares directly into his self managed superannuation fund.  Members also have greater control over how they manage their pension and retirement plans.

Tax benefits are also greater in SMSFs. Several individuals can come together and pool their resources which, in turn, can help the members grow their wealth together.

Characteristics of a good Self managed superannuation fund

Many financial experts will agree that SMSFs are right for people who desire greater control over their superannuation savings. Naturally, it is important that the fund satisfies following criteria:

  1. It should not have more than 5 members
  2. Each member should also be the trustee
  3. No member should be employed by another member, unless they have direct relation
  4. The trustees should not get any financial remuneration for being trustees

Responsibilities of each member of the SMSF

Naturally, all members also have a role which they must fulfil in order to run the fund successfully:

  1. Members must ensure that the fund complies with the laws and changes in it.
  2. They need to file a superannuation fund return and also lodge annual income tax returns
  3. They must ensure that the funds are not used for giving out on loan to members or their relatives
  4. They must ensure fulfilling conditions of release in order to allow access to monies of the fund to individual members
  5. Each member must be honest and work in the best interest of the fund
  6. The group must retain control over the fund at all times
  7. The money of the fund must not be mixed with any personal assets of the members.
  8. The members must draw a strategy at the beginning of starting the fund and make sure to stick to it.
  9. They must also maintain meticulous records at all times.

Only by following these rules can one ensure success of the SMSF.

Get advice before you start a self managed superannuation fund!

As stated before, a SMSF is NOT right for everyone and it is best that you seek legal help before you start it.  There is great deal of regulation regarding SMSF and trustees are accountable for staying up to date with the changing laws in the field.

Some cases of SMSF also need strategic advice, legal counselling, management and other service/professional help. Over time, these can end up being costly and also might make the fund more expensive than other investments of similar kind.

Asking following questions can help if SMSF is right for you:

  1. What is the motivation behind starting this fund?
  2. Will a self managed fund produce better results than existing one that is managed by professionals?
  3. Do you have sufficient funds and savings to make the superannuation fund cost effective?

Answering these questions is vital to the success of any SMSF and can help one decide if going the self managed way is the right way!

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