A self-managed super fund (SMSF) is among the most popular ways of saving up for retirement. By typically making all members of the fund trustees as well, SMSFs differ from other types of funds in the sense that they allow you to decide how your fund is managed, and control where and how your money is invested.
In general, SMSFs are thought to provide greater visibility over retirement savings to members, and lead to a better understanding of overall wealth tracking, consequently giving individuals more confidence in their lifestyle and investment decisions. However, the advantages of SMSFs go even further, and here are just some of the most important benefits you should know about:
Greater investment choice
Increased investment control is often touted as one of the biggest benefits of using an SMSF, along with a wider range of investment choices, such as commercial and residential properties, term deposits, collectibles, and direct shares. You will have access to derivatives as well, allowing you to hedge your portfolio risk and offering downside protection. In case you are a small business owner, an SMSF can also allow you to buy your property through the fund and then lease it back to your business. This is quite a common strategy among entrepreneurs that provides SMSFs with a steady income while freeing up capital to grow and expand businesses.
Tax control and minimisation
Apart from allowing you to use a tax-free pension as an income stream in retirement, as is the case with many other superannuation funds, an SMSF will provide more flexibility than other structures as well, in terms of allocating earnings, contribution timings, and implementing ‘reserves’. In turn, this will allow you to minimize the overall tax SMSF members have to pay within the fund. Similarly, this fund could also provide some leeway in terms of taxable liabilities. As SMSFs only have one tax return but can hold up to four members, tax advantages could be achieved through allocating funds from the non-retired to the retired members of the fund.
Ease of setup and administration
With the invaluable advice of an experienced accountant, SMSF setup and administration can be quite simple and straightforward as well. A specialist can help to manage your funds by making wise and beneficial investment decisions, as well as develop a legally required document investment strategy to guide trustee decision-making and satisfy the sole purpose test. Whether it’s ensuring your SMSF fund is set up with a trust deed, appointing an independent auditor, or providing event-based reporting, a qualified professional can truly make setting up and administrating your SMSF fund a simple and seamless experience.
Lowering transaction costs
When the time comes to move to your retirement phase, an SMSF will give you the opportunity for a smoother transition. As you won’t be triggering any capital gains tax and similar transaction costs, you also won’t need to sell any assets like shares that might incur several fees and taxes in the process. Instead, you will be able to keep all your investments, and simply start drawing down on the SMSF balance as income. This is unlike many retail and industry funds, which might force you to sell your super fund assets and then repurchase them once again when you enter the retirement phase.
Life insurance opportunities
Another important benefit of an SMSF is the ability to pay for several types of personal insurance covers, such as life insurance, income protection insurance, and total and permanent disability insurance. While you might already have coverage in these areas to a certain extent, chances are high it won’t be quite as tailored to your specific needs. Opting for coverage through an SMSF, on the other hand, will ensure the policies are more suited to your individual wishes and needs, while also obliging insurers to provide continuous coverage as long as the premiums are paid, thus making for a more personal and secure insurance coverage overall.
Transference of wealth
If you need more flexibility and control when it comes to estate planning, an SMSF can be quite beneficial in this area as well. With this fund, you will be able to create a more efficient strategy that will ensure your wishes in terms of wealth distribution are met, all with more favorable tax outcomes, such as leaving any taxable pensions to dependants who could receive them tax-free. Similarly, you will also be able to structure more tax-efficient income streams to dependents such as a sick spouse or disabled children, offering more control over how and when the income is distributed.
Although they might come with certain costs, trustee responsibilities, and insurance covers, SMSFs have a number of benefits as well. It’s important to take all of these aspects into consideration when deciding whether this type of fund is the right choice for you.