Running a Self-Managed Superannuation Fund (SMSF) allows you to manage and invest your superannuation to achieve your retirement goal. SMSF’s can offer both advantages and disadvantages. While it provides you with greater control and flexibility over your investments, it also requires additional responsibilities and can impose potential investment risks. We have listed out some advantages and disadvantages to consider before setting up an SMSF.
Advantages of a Self-Managed Superannuation Fund (SMSF):
- Control: With an SMSF, you have full control over your investment decisions allowing you to choose where to invest your funds. This control allows you to tailor your investment strategy to suit your individual financial goals and risk tolerance.
- Flexibility: SMSFs offer greater flexibility as you have the ability to change your investment options, adjust your asset allocation, and respond quickly to market conditions. Additionally, SMSFs provide flexibility in estate planning, allowing you to pass on your superannuation benefits to your chosen beneficiaries.
- Cost-Effectiveness: Depending on the size of your SMSF and number of members, it can be cost-effective compared to retail or industry super funds. For larger balances, the cost savings can be significant, as the fees are generally based on a fixed rate rather than a percentage of assets. This can be advantageous if you are confident in managing your own investments.
- Tax Benefits: The earnings on assets held within an SMSF are taxed at a maximum rate of 15%, which are ordinarily lower than personal income tax rates. SMSFs also offer various tax strategies, such as claiming deductions for contributions and utilising franking credits on dividend income.
Disadvantages of a Self-Managed Superannuation Fund (SMSF):
- Time and Effort: As a trustee, you are responsible for the day-to-day administrative tasks, investment decisions, annual compliance, and keeping up with changes in superannuation laws
- Responsibility and Liability: As an SMSF trustee, you have legal obligations and responsibilities. You must act in the best interests of all fund members, make compliant investment decisions, keep accurate records, and meet reporting requirements. Failing to meet these obligations can result in penalties and loss of concessional tax treatment.
- Investment Risk: With control comes the risk of poor investment decisions. If you lack experience or make incorrect investment choices, it can have a detrimental effect on your retirement savings. It’s essential to have a sound investment strategy and consider seeking professional advice to mitigate these risks.
- Cost Burden: While an SMSF can be cost-effective for larger balances, it may not be the case for smaller balances. Setting up and running an SMSF involves various costs, such as establishment fees, accounting fees, audit fees, and ongoing administration expenses. If your superannuation balance is relatively low, these costs may outweigh the benefits of having an SMSF.
Before considering and establishing an SMSF, it’s important to obtain independent financial advice to compare your current superannuation, and to weigh up whether an SMSF is the right option for you.
To speak with one of our SMSF Team Members about a new or existing self-managed superannuation fund, contact our office today on 08 9256 2777 or email admin@bqk.com.au
Liability limited by a scheme approved under Professional Standards Legislation