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Should you manage your own super and move to a SMSF?

Managing your own SMSF and riskSelf-managed superannuation funds (SMSF) are currently growing in popularity for those seeking control over their super investments. However, DIY super can be rewarding for almost anybody. If done correctly, you could be reeling in higher returns than an industry or commercial fund can manage.

We all know that super is a trust fund that holds assets and invests to generate income for your retirement. If you opt for a SMSF, you have the power to manage and change these investments at your own discretion, which can include both Property Australia (residential and business property), Equity (Australian and global shares), Fixed Income (Australian and global bonds).

A SMSF can have four trustees (members) or less, so it’s an attractive possibility to start up a fund to cover your whole family. However, before you jump on the DIY bandwagon, you’re going to need to be prepared.

The money

The Australian Securities and Investments Commission (ASIC) recommends that you have at least $200,000 in cash to make the costs associated with setting up your fund and administering it each year worth it.

You will face ongoing expenses such as professional tax, accounting, audit and legal advice. You may also lose the benefits that are coupled with traditional super funds, such as disability and life insurance, which means you need to be open to organising and funding separate insurance covers for individuals in your SMSF.

The good news is a SMSF can provide you with the opportunity to reduce income tax on investment income and capital gains, since only 15 per cent tax is paid on the taxable income of the fund. The tax payable is also reduced by imputation credits on dividends received by the fund.

If you’re running a business, you can own the business property in your SMSF and rent it back to yourself or a related party. This assists common cash flow and funding problems.

The resources

Having direct control over investment decisions is a driving factor for people wanting their own SMSF. One perk is being able to transfer personally owned shares and other listed securities directly into your SMSF(provided you comply with ATO requirements). Another is being allowed to use SMSF money to borrow and invest, thanks to recent government changes to super legislation. You’re going to need to have the basic skills, knowledge, time and competency to manage your own investments.

If you’re stuck, you can always seek professional guidance and coaching from a specialist firm to start out. After all, DIY super can be fun and financially rewarding once you know what you’re doing.

The responsibility

You and your four trustees will be responsible for running your SMSF according to the law, trust deed and in the best interests of all members. The admin, recording and reporting duties are extensive and will be rigorously followed up by the ATO.

This is easily overcome by getting a professional administrator on board to help with the book work. In most cases, the admin and compliance costs are often less when compared to the fees charged by industry and commercial funds. However, these costs will vary according to the investment’s size, professional advice, transaction numbers and the type and amount of investments.

The verdict

The Commonwealth Government’s A Statistical Summary of Self-Managed Superannuation Funds report1 highlighted that SMSF members generally pay lower fees, and SMSF investments on average performed better than all other super funds across the previous three years.

A SMSF potentially offers increased financial security in life. Superannuation assets can be accumulated and used to fund superannuation-funded pension to retired trustees. Plus, some trustees may qualify to receive a full or part government age pension.

Is managing your own SMSF worth it over being a member of a super fund? That’s a decision only you can make. But the benefits certainly point towards a SMSF.