Key Benefits of Managing Your Own Super Fund
Managing a self-managed super fund (SMSF) comes with a significant amount of responsibility, yet it offers a range of benefits that can be particularly attractive to those who want more control and direct involvement in their retirement planning. In this part of our series, we will explore the key advantages that SMSFs can provide to their members.
Control and Flexibility in Investment Decisions
One of the most compelling reasons to start an SMSF is the level of control it offers. As a trustee of an SMSF, you have the authority to make decisions about how your super is invested. This flexibility allows you to:
Tailor Investments to Personal Circumstances: Each member's personal financial situation, risk tolerance, and retirement goals can directly influence the fund’s investment strategy.
Timely Decisions: You can respond quickly to market changes or new investment opportunities, potentially capitalizing on investments that might not be feasible in a larger fund.
Broader Investment Choices
SMSFs provide access to a wider range of investment options than other types of super funds. This includes:
Direct Property: SMSFs can invest in commercial and residential real estate, which can be particularly advantageous for business owners wanting to own the property from which they operate.
Unlisted Assets: Investments in private companies and other non-publicly traded entities are possible.
Overseas Investments: You can diversify your investment portfolio by including international shares and property.
Collectibles and Personal Use Assets: Under certain conditions, SMSFs can invest in collectibles such as art, stamps, and vintage cars, though strict rules apply to their storage and insurance.
Tax Management Benefits
SMSFs can offer efficient tax management and planning opportunities:
Concessional Tax Rates: Investment income is taxed at a concessional rate of 15% within the super fund, and capital gains are similarly discounted if assets are held for longer than a year.
Pension Phase: When members start drawing a pension from the fund, the income on those pension assets is tax-free, including capital gains.
Income Stream Control: You can optimize your tax position by starting a pension and drawing down superannuation when it suits your tax situation best.
Estate Planning Flexibility
SMSFs offer enhanced flexibility in estate planning. Members can:
Design Tailored Death Benefit Nominations: Beyond simple binding death benefit nominations, SMSFs can structure more complex agreements to suit specific family circumstances.
Control Over Fund Disbursements: Trustees can have direct control over how and to whom benefits are paid, potentially reducing conflicts among beneficiaries.
Cost Effectiveness of SMSF’s
While SMSFs can be expensive to operate, they can also be cost-effective, depending on the size of the fund and the nature of the investments:
Scaled Costs: As fund assets grow, the proportional costs can decrease. Operating costs might become comparatively less than the fees charged by retail or industry funds.
Customization of Services: You can choose which services to pay for, potentially avoiding the higher management fees of traditional funds, especially if you are knowledgeable and active in financial management.
Conclusion
The autonomy to make tailored investment decisions, potentially lower tax rates, broader investment choices, and strategic estate planning are all compelling reasons to consider an SMSF. However, the benefits of an SMSF come with the need for a commitment to active management and compliance with regulatory requirements.
In the next part of our series, we'll look at the potential pitfalls and how to avoid them, ensuring your SMSF operates smoothly and remains compliant with Australian superannuation laws. Stay tuned to learn more about navigating the complexities of SMSFs.
DISCLAIMER
Any advice contained in this blog post is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Before making any decision, you should consider the appropriateness of the advice with regard to those matters. Ask us for more details.