It carries a lot of responsibility to monitor your own super funds. In fact, it requires considerable time and effort.
If you have a lot of excellent and comprehensive knowledge of tax and legal matters, a self-managed super fund (SMSF) may be fit for you.
You need to recognize your legal responsibilities and the investments that you make because even though you employ experts to help you, you're still the one that ultimately controls your own SMSF.
Do-it-yourself Super Fund
The word “Self-Managed Super Funds” basically means to create your own superannuation fund. Having an SMSF is gaining full control of your super - how it is invested and utilised. This has become a popular way of saving for retirement.
While SMSF merits a do-it-yourself procedure, it is absolutely incorrect to assume that managing a super would be as easy as 1, 2, 3. It is essential to note that you must be aware of the compliance requirements and regulations set by the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC).
What Is Really an SMSF?
The SMSF is a trust where assets or resources are kept and managed to provide future retirement income on behalf of up to four persons. The shareholders of an SMSF must be trustees of the fund or directors of the corporate trustee of the fund, subject to certain exemptions.
This private superannuation fund that you manage by yourself is regulated by the ATO. All the 4 members must be trustees and are responsible for the decisions made about the fund. The decisions made in accordance with the super should be compliant with relevant laws.
The setup expenses and yearly operating costs can be high, so unless you have a high balance, it's most value-effective.
What Is the Difference between an SMSF and Other Types of Funds
The main distinction between an SMSF and other types of funds is that typically the trustees are also the members of an SMSF. This implies that the SMSF participants are accountable for abiding with the super and tax laws.
What Are Its Benefits?
The primary reason for setting up your own SMSF is the improved autonomy degree you have, as well as the option of investment and mobility. You are the fund's director and thus make decisions about the investment strategy of your fund and the volume of assets held in your account.
With SMSFs’ customisability, you can invest in investments not available in the public super fund, though these investments need to follow certain limitations and restrictions.
This will be beneficial for all members as it can cater and suit to the.various requirements of all members, from the set up to the wind-down of your account.
Ultimately, like all other super funds, an SMSF can be taxed at a lower rate. The highest tax rate for earning from an SMSF is at 15 percent. This lower tax rate is available only for SMSFs which are compliant to the rules implemented by the ATO, the Superannuation Industry (Supervision) (SIS) Act 1993 and the SIS Regulations.
How Do I Make It Work For Me?
Remember that an SMSF is a legal tax structure aimed solely at providing for your retirement. SMSFs function under rules and restrictions similar to regular super funds.
There are always a number of things to consider before having your own super. Skeptics say that starting your own super has a high cost, others would say that it prioritizes your retirement needs.
Every time you decide to set up an SMSF account, know that you must:
- act as a trustee or administrator which places significant legal responsibilities on you
- establish and adopt an investment strategy suitable for your risk tolerance and likely to meet your pension requirements
- need financial expertise and knowledge to make solid investment decisions
- need ample time to invest in research and maintain the fund
- have comprehensive expense plans such as qualified accounting, tax, audit, legal and financial advice
- coordinate coverage for super fund holders, including income protection and absolute and permanent disability cover.
It’s indeed a lot to manage that is why some get professionals who are licensed to offer SMSF advice can help you measure the pros and cons of having an SMSF. These advisers help you decide whether it's right for you.
They may also be able to assist with your SMSF's management and business decisions. Yet note that you can't hand over the burden of being a trustee or director, so you have to consider what your consultant is doing.
Technology-Driven SMSF Advice
As technology progresses, so as SMSF advising. Traditionally, SMSF advisers are actual persons, but today we have so-called “robo-advisers”. Robo-advice is delivered by a computer or specific application.
Getting a robo-adviser is considered relatively cheaper than hiring a person for your financial advice. Though it is deemed cheaper, there are many limitations when it comes to robo-adviser and it may not always deliver quality results and monitoring like a normal person would.
Real-time SMSF advice
This is a type of advice where you get to ask for counsel, depending on your current needs.
SMSF advisers should be licensed to provide this type of advice. While some of you might need SMSF advisers, always remember that SMSF needs to be audited to ensure that they are compliant with all laws.
Super Audits, at your service
Are you’re looking to start your self-managed super fund or trying to seek self-managed super fund auditors for your clients’? Super Audit is here to help.
If you have any queries regarding our auditing services, please email us or phone 1300 AUDITOR (1300 283 486) during office hours from Monday to Friday.