It’s important for individuals, families and friends thinking of starting an SMSF to understand what the opportunities are, and if these opportunities are relevant and of interest. By knowing this, people are better placed to make informed decisions about whether it is worth it, or seek further financial advice.
We are going to cover a few of the main reasons that self managed super is popular and why people go through the effort of setting up an SMSF.
Control of the investment decisions
With an SMSF, you control all aspects of your investments.
This means you aren’t limited to choosing packaged strategies such as balanced, conservative, or growth. APRA regulated super funds have these structures because they are managing all their member’s balances collectively. They simply can’t tailor investment plans for their members due to size constraints.
Your fund’s investment growth lives and dies by the skill of the fund managers allocated to the strategies you have selected, and this process is largely hidden from you.
Control is one of the major themes for our new clients and also industry wide By taking back control of your retirement, you can choose the asset classes you want to invest in, you can change your risk strategy, you can tailor your investments to suit your retirement objectives.
Greater variety of investment opportunities
Once you have an SMSF, you gain the ability to invest in a wider range of opportunities.
Just as a taste, you can choose emerging markets, FX, specific industries for shares, gold bullion, and collectables.
One of the biggest differentiators for SMSFs is to purchase residential investment property. You can check out our blog on purchasing properties or visit our property page to learn more about this. Essentially, SMSFs can outright own investment properties of borrow money through an LRBA by setting up an additional trusts. There are CGT and tax benefits to this approach.
Another type of investment gaining traction with SMSFs is cryptocurrency. Several exchanges operate in Australia and it is becoming easier to invest in crypto. Regulations for SMSFs remain tight but it is a popular choice for investment, particularly among younger trustees, with some setting up an SMSF to go all in on crypto.
Granularity of investment selection
SMSFs are particularly popular among investors who want to go into detail and enjoy precision when selecting investments.
Though indexed products like funds and ETFs are available to SMSFs, you have the ability to go deeper and choose specific stocks or markets if investing in securities.
If you want to invest in property, you can choose between residential and commercial, as well as by type and post codes. Other examples of detailed choice are precious metals, such as gold, silver, etc, or collectibles such as fine art, classic cars, vintage coins, etc.
With cryptocurrency, you can choose any coin available on the exchange you are using.
By setting up an SMSF, you can choose the level of detail that you want to get into, how deep you go is up to you.
If you like the idea of setting up an SMSF to control your retirement savings:
For many, control, variety and granularity are the deciding factor for setting up an SMSF. There are more considerations though, particularly tax and cost. We discuss these briefly below,
Commercial Property
Business owners can take advantage of a strategy that allows their SMSF to lease a commercial property to their business.
There are strict rules that must be followed such as market rates, documentation, and payments
Tax
Super contributions are taxed at 15 % for concessional contributions and 30 % for non-concessional. Concessional contributions have a yearly cap of $30,000 as of 1 July 2024. Unused concessional contributions are able to be carried forward for up to five years also.
The concessional rate of 15 % also applies to your investment income, providing your SMSF is compliant.
Though these benefits are applicable to ordinary funds too, the difference with SMFs however is that you have more ability to control the tax strategies around capital gains, income and franking credits. This gives you the flexibility to implement an advantageous tax structure for your SMSF.
Estate planning
Through the SMSF trust deed, complying nominations can be put forward for the disbursement of death benefits. This can be planned around specific included or excluded beneficiaries in a tax beneficial manner.
Flat fee administration
Most SMSF’s incur flat, recurring fees to maintain their operation. Our fees for administration are a flat $183.30 per month, including GST.
As your super balance grows year upon year, the percentage of your fund balance going towards fees decreases. This is because your investment returns and contributions can outpace inflationary cost increases. This allows you to make savings over the lifetime of your accumulation and disbursement phases.
Percentage based fees commonly offered in retail funds however, offer no savings benefit over time. The more you grow your super wealth, the more you pay.
The bottom line
There are many reasons for a setting up an SMSF, whether it is worth it depends on the investments you make and the costs you incur.
Research has shown that SMSFs have outperformed APRA regulated funds on average over the last five years. This alone has been reason for people to jump on board with an SMSF, we would caution that you understand and align with one or more of the above reasons for it to make sense for you.
If you decide you’re keen to start your SMSF journey, then we’re here to help.
CONTACT US
You can also write to us at
info@jarospace.com
Or call us on 0489 074 123
Business hours
9 am – 5 pm
Monday – Friday
We will respond to your enquiry
within 2 business days.
