More and more often, you may be treated to an in-depth discussion about so-and-so’s SMSF (self-managed super fund) – it seems they’re becoming the thing to have.
Just because they seem popular, however, doesn’t mean they suit everyone.
Having an SMSF is a bit like having a pet: You need to want one for the right reasons and you need to expect it to be a lifelong relationship.
Last year saw many people bring a pet into their household for companionship during unexpected time spent at home, but what happens when they return to the workplace and the pet is at home without constant care and attention?
While the costs of setting up and maintaining an SMSF are likely to be more than those of welcoming a pet, the commitment issues are similar: Time and effort are required to make the relationship work.
If you’re finding the idea of an SMSF appealing, how do you know whether it’s the right fit for your circumstances?
There’s a couple of ‘gateway’ tests that might help provide an answer:
- SMSFs may be suited to: Small or medium-sized business owners who need business premises and who don’t want to be paying rent to a stranger (why not pay it to yourself?);
- Those who want to invest their super in non-mainstream investments (in which they have experience), which are not available in other superannuation funds;
- Life partners or even family members who want to run a single superannuation investment portfolio rather than individual ones.
Don’t forget that an SMSF needs to be run according to the rules, which are intended to protect the tax privileges applied to superannuation (15 per cent tax on investment earnings, reducing to no tax on earnings if the fund is supporting pensions).
There are a number of other issues that need to be considered, including:
- Do you have enough in super to make the SMSF cost-effective for you?
- Do you have the time to commit to make sure the SMSF is run properly (it’s OK to use professional support)?
- Are you even eligible to be a member and trustee of an SMSF (there are rules about this)?
For the majority of Australians, an SMSF is unlikely to be necessary or appropriate.
There are a large number of superannuation funds available to use and your employer is likely to have a default fund which they will use for you if you don’t tell them which one you prefer.
Paying attention to the performance of your super fund is important, regardless.
Since ongoing contributions are made by your employer, it’s easy to forget to check-in. A good tip is to schedule a calendar appointment to do so. It’s your money and your financial future, so it’s important that you are across what your fund is doing. Consider getting good advice on how to use your super to best advantage.
Do you need to get rid of your SMSF?
If you’re at the other end of the spectrum and have had your SMSF for a few years now, it might be time to take stock.
It’s important to do a health check from time to time as part of your ongoing review of your super arrangements.
You might have set up the SMSF some time ago for a particular purpose, such as family investment arrangements, and the family have all gone off and done their own thing, leaving just you. You might be retired and drawing a pension from the fund and it’s getting a bit small.
You need to spend just as much time reviewing the ongoing need for your SMSF as you spent at the start determining whether you needed one.
As in most of life’s big decisions, it’s best to seek expert, trusted advice when you’re unsure. Your super is certainly no exception.
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