The beauty of self managed super
Published in The Advertiser June 2007 by Dale Gillham
New superannuation laws have brought the self-managed super fund firmly into the spotlight, as investors clamour to take full advantage of the $1 million tax-free threshold and invest up to that amount in their super before June 30.
A SMSF is a small superannuation fund of between one and four members, where control is kept in their hands.
The members decide how the fund will operate and what investments the fund will invest in.
It is generally considered more economically viable for a SMSF to be set up with at least $100,000.
Given this, the majority of people setting up these funds tend to be those who are thinking about retirement - those in their 40s and 50s looking for more control of their money, great tax benefits and more investment choice. But they aren't for everybody.
Many people are not confident about SMSF structures or managing their money, but establishing and operating one isn't too difficult.
It is a matter of education, understanding the legal requirements, and in identifying the right investments for you.
The pros of setting up an SMSF include the opportunity to control the decisions on how the fund is to operate.
You have the flexibility to alter investment strategy to meet the changing needs of the members or any changes in the economic climate.
Your fund can invest in shares, managed funds, bonds, property trusts, direct property, cash, artwork, collectables, or other assets that suit your objectives.
Tax concessions are available and assets are protected from bankruptcy and other legal claims up to a certain threshold.
Because a SMSF can have up to four members, family members can pool investments into the one SMSF, which has the effect of increasing their investment options and potentially reducing costs.
In the event of death of a member, a SMSF can continue and investments can remain in the SMSF for the benefit of the remaining members.
A potential downside is that a SMSF cannot borrow funds to leverage assets, which in the growth phase of a person's investment portfolio is quite important. F
or some people, funds kept outside a SMSF can grow faster despite the taxation benefits.
There are also compliance issues and trustees need to ensure that the fund is run in accordance with the ATO guidelines.
Failure to do so can mean that a fund is taxed at the top marginal tax rate and could be closed.
SMSFs take just a few weeks to set up and costs can range from $400 to a few thousand dollars.
Ongoing fees can be broken down into compliance fees such as administration and audit, which generally range from $500 to $2000, and management fees ranging from 1 per cent to 2 per cent of the managed fund.
A SMSF requires more thought, and perhaps more nerve, than simply sticking to traditional super funds.
But as a member you have greater control over your investments, a wider choice of assets in which to invest and the chance to retire with a greater windfall for your effort.
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