Is self managed super right for me?
Self managed super funds are similar to other super funds as they are designed to help you build your super savings so you can have the lifestyle you want in retirement.
The key difference is that all members of SMSFs are trustees and directly control the fund. They are responsible for the fund’s assets and investments, paying the benefits and ensuring that the fund is compliant.
While SMSFs can mean more control and flexibility over your super savings, they are not for everyone as they require a much higher level of time and attention to administer and manage.
Requirements of an SMSF
- Funds can have up to four members and each member is generally a trustee of the fund.
- The fund must operate for the ‘sole purpose’ of providing benefits to its members upon their retirement.
- No member of the fund can be an employee of another member, unless they are related.
- The trustees/members do not receive any remuneration for their services as a trustee.
- Members/trustees of the SMSF are required to prepare and implement an investment strategy for their fund. This provides a framework and direction for the investment of contributions.
- The fund has wide flexibility in investment choices. Direct property, managed investments and direct shares can all be included in an SMSF portfolio.
The key issue with SMSFs is that members/ trustees are ultimately responsible for ensuring that the SMSF remains compliant with the law. The responsibilities and obligations are numerous so it is important to discuss with your financial adviser whether an SMSF is for you.
Things to consider
Deciding to set up an SMSF is an important decision that you should consider very carefully. The following information outlines some of the advantages and disadvantages of SMSFs.
Benefits of SMSFs
An SMSF gives you control to choose your own investment strategy. As the trustee you are responsible for managing the investment strategy and the underlying investments of the fund.
An SMSF gives you greater flexibility in your choice of investments under certain conditions. Your portfolio can generally include a wide range of investments such as managed funds as well as direct assets such as bonds and shares.
Trustees of SMSFs also have greater ability to manage the fees paid by the fund. By selecting and managing your investments carefully, you can keep the fees you pay at a minimum.
SMSFs are treated for tax purposes exactly the same as other superannuation funds. This means they receive the highest concessional tax rate of 15%.
Total wealth management
SMSFs may also provide you with a range of options in terms of estate planning and flexible benefit payments.
Considerations for SMSFs
SMSFs are not suited to everyone so it’s important that you understand the risks as well as the benefits. Your financial adviser will be able to help you decide if an SMSF suits your circumstances.
As the trustee, you are ultimately responsible for the fund. You need to have a good understanding of the rules and regulations for operating an SMSF. It is also important that you keep up to date with the latest developments in investment markets and legislation. Financial professionals such as your adviser or accountant can help you manage your fund.
The administrative requirements of running an SMSF are quite time intensive so you need to ensure that the management of an SMSF will fit into your current lifestyle.
If you are considering setting up an SMSF, you will need to investigate the associated set-up costs and then the ongoing accounting, brokerage and adviser fees. You will also need a sufficient account balance to make it cost effective in the long run.
Speak with your financial planner about whether an SMSF may be the right approach for you.
Super Saving Strategies
There are changes afoot for your super, so here are five ways to make more of what you have.
There are changes coming with the Federal Government’s review of the superannuation industry, but many of these are gradual ones, such as the move to increase minimum compulsory employer contributions, or Superannuation Guarantee (SG), from 9% to 12% by 2019.
While 2019 may seem a long way off, Pauline Vamos, chief executive of the Association of Superannuation Funds of Australia (ASFA), an industry body for the superannuation sector, recently predicted that a higher SG would make a significant difference to retirement outcomes.
“For a person 30 today, earning $50,000 a year and with a current super account balance of $23,000, their lump sum on retirement will increase from $300,000 to $385,000 with the move to 12% SG,” says
Pauline (ASFA media release 29 June 2010).
Five super saving strategies
Now you can start to think about some strategies to boost your super balance.
To get an idea of how much you’ll have in retirement and how much extra you’ll need to reach your goal, speak with your financial planner.
Under age 50 on 30 June 2011:$25,000
Age 50 or over on 30 June 2011: $50,000
Under age 65 at any time during 2010-2011:
or up to $450,000 over a 3 year period under the bring forward rule.
Age 65 or over for all of 2010-11: $150,000
A financial adviser can help you with the detail on the caps which apply to you, how your tracking in relation to the amounts for the financial year, and which future strategies will work best.
1) Salary sacrificing can be a good bet
Salary sacrificed super contributions are taxed at a maximum 15%, instead of your marginal tax rate, which could be as high as 46.5%, which can leave you with more super. But beware of the concessional
contribution caps. (See table 1).
2) Give co-contribution a go
This applies to those with an annual income below $61,920. If you earn less than $31,920 per annum and you contribute $1,000 to super during that financial year, the government could potentially match your contribution dollar for dollar. As your annual income increases up to the maximum of $61,920, the government contribution reduces.
3) Consolidate your super accounts
If you’re one of the many Australians who have multiple super accounts, you could be paying extra in unnecessary fees.
Consolidating your accounts could save on fees and time, and as a result may boost returns. Remember to check how the benefits in your various funds may be affected, such as insurance cover, or whether exit or withdrawal fees apply.
4) Spouse contribution tax rebate
A working person can contribute super on behalf of their spouse in a number of ways which could provide some tax benefits.
Some examples include making an after-tax contribution that’s eligible for a tax rebate or splitting or transferring the working person’s salary sacrifice contributions to the spouse.
5) Align your super strategies with your personal circumstances
It is important to revisit your super strategies with your financial planner as your personal circumstances change. For example, have your financial responsibilities decreased and you can consider increasing your salary sacrifice amount? Or, perhaps your income has decreased, making you eligible for a government co contribution.
National Rental Affordability Scheme (NRAS)
Advanced Wealth is pleased to advise that we are now in a position to assist with the purchase of NRAS properties via a SMSF.
NRAS investment via a SMSF brings together two complex and sophisticated components. With the vast majority of Lenders, and Mortgage Brokers, yet to master either one of these areas it is little wonder that virtually none have been able to combine the two.
Advanced Wealth have been working with Lenders for over a year to create a solution and we now have our first Lender ready to accept transactions. Currently six Consortium have been approved with others being assessed for acceptance by the Lender.
Despite some mixed messages in the marketplace, to the best of our knowledge and belief this is the only lending solution currently available to SMSF's for investment into NRAS securities.
Please contact us if you have a scenario to run or have any questions relating to SMSF lending for a NRAS property.
House and Land Packages
Possibly one of the rarest commodities in the SMSF property investment landscape is the availability of quality new House and Land packages in high growth areas.
It's not that these sorts of properties don't exist. It's simply that most Developers do not have sufficient capital to allow them to complete house and land packages using their own funds and sell them under a single contract. Instead they rely on the purchaser to utilise a 'construction loan' and make progress payments throughout the construction period.
The National Rental Affordability Scheme (NRAS) is becoming an increasingly popular option for savvy investors in-line with a number of recent legislative changes.
The new laws allow Self Managed Super Funds (SMSFs) to borrow money to purchase residential or commercial real estate.
A SMSF investor can have just as much choice and control over investment properties purchased within a SMSF as they would in their own name, making the NRAS an appealing option.
Leading property analyst Michael Matusik, director of Matusik Property Insights, said there were significant tax benefits to owning property through a SMSF.
“Income and capital gains from a property, as with other fund-held assets, are concessionally taxed,” he said.
“Income is taxed at 15% a year and capital gains are taxed at an effective 10% during a fund’s so-called accumulation or saving phase, if the property is held for more than 12 months.” Mr Matusik said there were also asset protection advantages of owning property in a SMSF.
“Assets held in a super fund are legally inaccessible to trustees in bankruptcy provided contributions or asset transfers were not made with the ‘main purpose’ of avoiding creditors,” he said.
“That makes superannuation a prized method of asset protection, particularly as there is no dollar limit on the protection.” Mr Matusik said investing with an NRAS property was also attractive because it offered all the benefits of a normal property purchase, with generous tax free incentives from the Government that totalled $9,524, indexed to CPI, for up to 10 years.
Click here for information on purchasing and NRAS approved property through your SMSF