Some of my friends in their 30s have set up an SMSF. I don’t have a large super balance but want control. Is it worth it?
If you’re under 55 and thinking about setting up a self-managed super fund (SMSF) you’re not alone. SMSFs are being established by younger Australians in a shift in the age of those wanting control over their super. In March 2014, younger people represented 75% of new SMSF members.
Before deciding if an SMSF is right for you, consider some of the common questions our clients are raising with us.
How much do I need?
There are varying opinions about how much money you need to start an SMSF. Consider how much you’ll have if your super is combined with other potential fund members. And keep in mind that if your combined balance is less than $200,000 the ATO suggests an SMSF may not be the most cost-effective option—when compared to fees in retail, industry and corporate funds, SMSFs may cost more.
What age do I need to be?
By law you must be 18 to be a trustee of an SMSF although people under 18 can be SMSF members but conditions apply—for example a parent of a younger member may need to act as their trustee. Generally, all members must be trustees of the fund. They have legal obligations and are responsible for the management and decisions of the fund
If you’re under 55 you or your spouse may be actively contributing to super—and ideally you’ll have built up considerable super assets already. If you’ve also gathered investment knowledge and experience along the way, they’ll come in handy if you decide to manage your own fund.
What are the risks?
Generally the risks come with the increased responsibilities you’d have as an SMSF trustee.
Running an SMSF means you—along with other trustees—will be responsible for all of the decisions regarding the investments and activities of the fund.
If you’re pretty savvy when it comes to investing you may like the idea of selecting and managing investments from asset classes across the world. But the risk is your fund’s investment performance will ultimately rest with you and your fellow-trustees.
One of the most important duties of an SMSF trustee is to keep abreast of strict superannuation laws and understand how they’d be applied to you and your fund. Penalties for breaches were introduced on 1 July 2014 and can be applied to trustees (corporate or individual) but can’t be paid with SMSF monies. That means you could be personally liable for a penalty if your fund is found to be in breach.
What are the opportunities?
While there can be a lot of work involved in running an SMSF you have more opportunity in several areas.
You can pool your superannuation with that of up to four family members (including yourself). Not only does that provide the opportunity for costs savings—the bigger the fund balance the greater the potential for savings—but you also have full transparency of all the costs and returns for your super. That can help you manage your tax effectively too; another benefit of an SMSF.
An SMSF gives you ultimate investment flexibility too. So not only can the fund invest in direct property—residential and commercial—but it can borrow to invest. If you are a business owner your SMSF has the potential to buy premises that your business can lease back. Special rules apply so if this is an opportunity you’d like to explore, make sure you seek advice first.
SMSFs also provide flexibility in retirement. When it comes to accessing your money down the track—and how you’ll hand down your assets when you die—you have several options. It’s another area you’ll need expert advice in so speak with a financial adviser.
Before setting up an SMSF look into all your options. There are ways to manage the administration without using up all your spare time. You’ll need to consider your strengths and weaknesses and those of each trustee too—we can help you do this so contact us today to learn more about what might be suitable for you.
What you need to know
Any advice on this page is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters and consider the Product Disclosure Statement before making a decision about the product. AMP Life is part of the AMP group and can be contacted on 131 267. If you decide to purchase or vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.