The number of Australians choosing to manage their own super through a self-managed super fund (SMSF) is bigger than you might think. There are currently over 395,000 SMSF's with a total of over 500,000 members. An estimated 2,000 new funds are also being established each month.
How do SMSF's work?
Broadly a SMSF is a fund with less than five members. Each member is also a trustee of the fund (alternatively the fund can have a corporate trustee structure). Some of the other key features of a SMSF are:
- A SMSF must be maintained for the 'sole purpose' of providing benefits to members upon their retirement.
- Trustees are required to prepare and implement an investment strategy for their fund. This controls the way contributions are invested.
- Wide flexibility in investment choice for example, direct property, managed investments and direct shares can all be included in the portfolio.
- Approved auditors must be appointed and tax agents, accountants and financial advisers may also be involved in the running of a SMSF.
- Ultimate legal responsibility rests with the individual trustees (ie. the members of the fund) even if assistance is outsourced to the above professionals.
Why consider a SMSF?
Managing your own super could give you greater control and flexibility. The discretion to pick and choose your own strategy and investments, as well as the tax benefits of superannuation make SMSF a unique investment tool.
What are the pros and cons?
There are number of advantages and disadvantages associated with SMSF's.
- Investment choice - the portfolio can generally include a wide range of investments.
- Control - trustees have complete control over the fund and its investments (within the legislative framework).
- Holistic approach - SMSF's may provide you with a range of options in terms of estate planning and benefits payments.
- Trustee responsibility - each trustee is fully responsible for the decisions and operation of the fund. This includes the overall legislative compliance.
- Extra costs - a SMSF has additional costs such as the auditing of accounts, tax return administration and supervisory levies.
- Costs can be high- for funds with $200,000 or less, the costs can be relatively high as a percentage of the fund's assets.
Speak to your financial advisor
If you want to know more about Self Managed Super Funds, talk to a Breakaway Financial Adviser. They will give you more detailed information and point you in the right direction for your circumstances. You can also give us a call on 1300 172 292
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