One of the many advantages of self-managed super funds is the ability to exercise discretion over the investments made with one’s retirement savings (SMSF).
On the other hand, running an SMSF comes with a significant number of responsibilities and calls for a high level of management expertise. This is because it is up to you, not your accountant, financial advisor, or lawyer, to make sure that your SMSF follows the rules.
In this article, we’ll look at some of the reasons why investing through an SMSF might be better than investing through a super fund, as well as some of the problems that should be thought about.
Benefits Of SMSFs
Access To A Wider Variety Of Investment Opportunities
Having a self-managed super fund (SMSF) allows for greater flexibility and choice when it comes to accessing investment options that are otherwise inaccessible through traditional super funds. This includes both tangible assets like gold and intangible assets like works of art and collectibles like stamps and coins.
Your Self-Managed Superannuation Fund (SMSF), in contrast to investing with an industry, bank, or retail super fund, can borrow money to invest in real estate, typically utilizing a structure known as a Limited Recourse Borrowing Arrangement (LRBA).
When it comes to helping you expand your investment portfolio, this tactic is a good option to consider. Having said that, there are compliance requirements as well as restrictions. Recently, the Australian Taxation Office (ATO) issued a warning to investors about the potential risks associated with overinvesting and overborrowing in real estate through their SMSFs.
Tax Benefits
If you are a trustee of an SMSF, you have the right to take advantage of the same reduced tax rates that are available through super. Instead of being subject to the marginal tax rate, which for super funds could be as high as 45%, the return on your investments is subject to a maximum tax rate of 15%.
More Scale To Access Opportunities
In most cases, a self-managed superannuation fund (SMSF) can have no more than four members. When the money from four investors is combined, the scale is bigger, which makes it more likely that the group will be able to take advantage of investment opportunities that would be out of reach for a single investor. Having scale may also make it easier to charge lower prices.
In addition to these advantages, SMSFs also provide the flexibility to borrow money from within the fund for investment purposes. Some small business owners may also choose to keep their commercial real estate in their self-managed super fund (SMSF) for a variety of reasons, such as protecting their assets, making sure they always own it and making sure they can keep renting it out.
Considerations Regarding the Advantages of Using an SMSF
An SMSF provides a variety of advantages to its users. If you are a trustee, you can select how your retirement assets are invested and managed. In the next section, we’ll talk about the main benefits of setting up an SMSF and being in charge of your retirement savings.
Investment Management
The majority of superannuation schemes allow you to invest in assets like:
- Shares
- Variable interest
- Acquired through managed funds (often with restrictions).
SMSFs may provide a variety of extra possibilities, such as:
- Direct possession (commercial or residential) of
- Actual gold and other materials are
- collectibles, like works of art (subject to strict requirements).
supervised portfolios.
Increased Leeway In Terms Of Investment
This hands-on approach can mean, for example, that you can quickly respond to changing market conditions by adjusting your investment portfolio. SMSF members also have more freedom in terms of when they buy and sell investments.
The Capacity To Combine Your Super
The ability to combine your resources with those of up to three other members is yet another advantage of having an SMSF. Because you have a larger pool at your disposal, you may be able to take advantage of investment opportunities that would not normally be available to your SMSF.
Estate Planning
SMSFs give you a lot of room to work with when it comes to your estate planning needs. Members of SMSFs can make binding death benefit nominations that do not expire, provided that the fund’s trust deed permits them to do so.
This is in contrast to the majority of public-offer superannuation funds, which typically require members’ binding death benefit nominations to be updated once every three years. In addition, members of SMSFs may have a greater degree of leeway in determining how death benefits are paid out.
Efficient management Of Taxes
Because you have a greater say in how your assets are managed and how investment decisions are made within an SMSF, you may be able to manage the SMSF’s tax position.
The current tax rate on earnings in a superannuation fund is 15%. However, if the income comes from assets that are fully supporting an income stream, like a pension, then there is no tax to pay on that income within the fund. This is because the assets are wholly supporting the income stream.
This difference in tax rates shows that you may be able to reduce or even get rid of a capital gains tax liability if you have control over how you sell assets. This is because you will have control over the tax rate at which the assets are disposed of.
Increasing Value Through The Use Of Property
One more way to increase the value of your super is to invest in property through your self-managed super fund (SMSF). When you own property through your SMSF, the fund will usually buy a home or business to rent out to people who are not related to the fund’s beneficiaries. Because of the in-house assets test, members of the SMSF or their relatives are not allowed to rent residential property from the fund.
Always Think About What Could Go Wrong.
The administration of SMSFs is governed by several stringent laws and regulations. If you are the trustee of your superannuation fund, you are responsible for your investments and making sure your fund follows tax and superannuation laws. Before you set up a self-managed super fund (SMSF), you should make sure you are aware of the potential risks involved.
Your Responsibilities
If you decide to establish a self-managed super fund (SMSF), you will be in charge of the fund and responsible for ensuring that it complies with all applicable superannuation and tax regulations. Because it is such a significant choice in terms of money, you need to ensure that you have sufficient time and knowledge to make it. There is a possibility that you could do more with your retirement savings.
The trustees of an SMSF are in charge of making sure that the fund is only used to meet the retirement needs of its members. As the trustee of your self-managed super fund, you are responsible for ensuring that every choice you make is made with the members’ best financial interests in mind. It is necessary to be aware of the self-managed super fund pros and cons to fulfil this responsibility.