Setting up a Self-Managed Super Fund (SMSF) is a significant step toward taking control of your retirement planning.
But where do you start?
It can be a complex process, and everyone addresses the process in their own manner, but there are some universal truths about the steps to follow and methods to ensure compliance that can benefit the most.
In this article, our specialists at Aspire2 Wealth will explain it so you can confidently make the best decision for your future.
What Exactly Is a Self-Managed Superannuation Fund (SMSF)?
An SMSF is a private super fund that you manage yourself. Unlike a regular super fund, an SMSF gives you the reins to make investment decisions, be it property, commodities, shares or any other asset. You can have up to six members in an SMSF, all of whom are trustees, meaning each person shares responsibility for the fund’s compliance and management.
Why Consider Setting Up an SMSF?
If super funds are already available to you through your employment arrangement, why would you go through the effort of setting up an SMSF?
Well, the main advantage is the added level of control that is now available to you. You decide where and how your super is invested, allowing for a tailored investment strategy that suits your specific retirement goals.
Managing an SMSF isn’t just about freedom; it also comes with responsibilities and potential risks. You must ensure your fund complies with Australian Taxation Office (ATO) regulations, which can be complex.
Before diving in, it’s wise to consider whether you have the time, interest, and expertise to manage your own super.
How to Set Up an SMSF: Tips to Help
Let’s walk through the process of setting up your SMSF. Understanding these steps will help you determine if an SMSF is your right choice.
1. Understand How Much It Costs to Set Up an SMSF
On average, setting up an SMSF can range from $1,000 to $3,000, including fees for setting up the trust deed, registering the fund, and any professional advice you might seek. Remember, there are also ongoing costs, such as annual audits, accounting, and legal fees.
2. Decide on the Fund’s Structure
You’ll need to decide whether your SMSF will have individual trustees or a corporate trustee.
Here’s the difference:
- Individual Trustees: Typically cheaper to set up but may be more complex to manage if members change.
- Corporate Trustee: More expensive to set up but offers greater flexibility and easier administration if there are changes in membership.
Choose the right structure for you as it will impact the fund’s management and legal requirements.
3. Appoint Trustees and Members
Every SMSF must have trustees. If you’re the only member, you’ll be the sole trustee. Each member must also be a trustee if you have others in your fund. Trustees are responsible for making decisions about the fund and ensuring it complies with legal obligations.
4. Create the Trust Deed
The trust deed is a legal document outlining the rules of your SMSF, including how it operates and what it can invest in. A qualified professional must prepare it, and all trustees must understand and agree to its terms. Your deed is the backbone of your SMSF, so take your time with it.
5. Register the SMSF with the ATO
After creating the trust deed, your next step is registering the SMSF with the ATO. This involves applying for an Australian Business Number (ABN) and a Tax File Number (TFN) for the fund. You’ll also need to elect to be regulated by the ATO, which is necessary for the fund to receive tax concessions.
6. Open a Bank Account for the Fund
Your SMSF needs its own bank account, separate from your personal accounts. This account will hold all contributions, earnings, and expenses related to the SMSF. It’s also where you’ll receive employer contributions if applicable.
7. Create an Investment Strategy
One of the legal requirements for an SMSF is to have a written investment strategy. This strategy should outline how you plan to achieve the fund’s objectives, considering factors like risk, diversification, and the needs of the fund’s members. Regularly reviewing and updating your investment strategy is crucial to maintaining the health of your SMSF.
8. Roll Over Existing Super Funds
If you already have superannuation in other funds, you may want to roll these over into your SMSF. Doing so involves transferring your existing super into the SMSF’s bank account. It’s important to get this right to avoid any tax implications.
9. Get Ready for Ongoing Management
Setting up the SMSF is just the beginning. You’ll need to continuously manage the fund, including maintaining accurate records, lodging annual returns, and ensuring it complies with all regulations. You’ll also need to appoint an independent auditor to review the fund annually.
What Are the Risks of Setting Up an SMSF?
Managing your own super fund gives you control, but it also comes with risks. If your fund is non-compliant, you could face significant penalties, and the responsibility of managing investments can be daunting, particularly if markets fluctuate or investments underperform.
As such, it’s always best to discuss your financial goals, risk tolerance and personal situation with a financial adviser to determine whether an SMSF is right for you. It depends on your financial knowledge, investment experience, and willingness to take responsibility.
Learn More on How to Set Up an SMSF with Aspire2 Wealth Advisers
An SMSF can be a powerful tool for those who want more control over their retirement savings, but it’s not for everyone. By understanding the steps involved and the associated responsibilities, you can make an informed choice about whether this path is right for you. Remember, while an SMSF offers more control and flexibility, it also demands significant commitment and expertise.
If you’re still unsure, consider seeking advice from a financial advisor who can help you weigh the pros and cons. Speak with our specialists at Aspire2 Wealth Advisers today for more.
This content contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser (Aspire2 Wealth Advisers, 08 9322 7028), and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information.
