When people start to turn their attention to their retirement planning and how they are going to fund the sort of retirement lifestyle they are hoping to achieve sooner or later they start to focus on their superannuation and very often, they start to look into lending for SMSF (self managed super fund).
A SMSF is a fund that is set up to services a small number of people. There are a number of distinct conditions that need to be met for it to be considered a SMSF. These conditions include a maximum number of people that can be provided for. The fund also needs to be controlled by trustees or directors who also must be members. The members are in control of how they invest the funds within the SMSF account.
One of the keys to consider when deciding whether a SMSF is the right product for you is whether you are able to separate your personal finances from your superannuation finances. If you were to use SMSF assets for items that are deemed personal use, you may be consider to be non compliant with superannuation laws. SMSF funds need to be kept entirely separate and managed well.
It is also important to consider whether or not you have the time to manage your SMSF. It is not a project to be undertaken lightly and it is also important to be sure you have a high enough level of knowledge to manage the project effectively. As a trustee, it is your responsibility to manage and invest your superannuation and that is not an activity that would be suitable for everyone
One of the most common reasons for undertaking a SMSF is to save money. Many commercial superannuation funds charge fees that a based on the amount of money you have in your fund. That means, the more you have the more you are charged. SMSF fees however are most commonly a fixed amount per year, which means there is potentially a cost saving when the fund grows to a significant size. There are times and circumstances however where a SMSF isn’t able to earn enough income to make this a cost effective option. It is very important to make sure that the benefits will be worthwhile.
A good place to start when considering a SMSF is exactly what sort of benefits your existing commercial superannuation fund offer and whether changing might mean you need to pay for extra features. An example of this may be if your existing fund offers life insurance or income protection insurance or trauma insurance. By leaving your existing super fund and creating a SMSF you might have to start paying for that insurance upfront.
If, after conducting your research, you decide it is worth doing, there are a number of benefits to having a SMSF. One of these benefits is that it can maximise wealth creation when assets increase.
Another reason many people set up their own SMSF is because borrowing terms are flexible. Borrowing periods can be for a short time or a long time
Having a SMSF can also allow for additional non-contribution style funds once the members have reached their limit. In addition future income and capital gains are taxed at a lower rate when they are held in a SMSF.
As with all important financial decisions, it is very important to understand all the issues surround the decisions you make but here are a few other ideas you can think about when considering SMSFs. You could consider transferring more of your assets into SMSF to reduce your tax burdon. You could also consider using the SMSF loans regularly.
Always speak with a financial advisor you trust before embarking on the journey of setting up your own SMSF. Advisors who work full time in the industry are often aware of changes that are likely to affect you as well as the tips and tricks that can help make sure setting up a SMSF is worth the time and potential risk.