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5 Benefits of a Self-Managed Super Fund (SMSF)
Many Australians are now looking to take control and become more involved in their superannuation. SMSFs hold approximately one-third of the total super funds and are often the preferred choice for people who are highly involved with their superannuation and retirement planning. Our Accountants in Goldcoast have helped many clients set up accounts and run SMSF funds.
Many Australians are now looking to take control and become more involved in their superannuation. SMSFs hold approximately one-third of the total super funds and are often the preferred choice for people who are highly involved with their superannuation and retirement planning. Our Accountants in Goldcoast have helped many clients set up accounts and run SMSF funds.
Here are the 5 benefits that make SMSF an attractive option for many people:
Investment choice
SMSFs enable members to invest in a way that is generally not available in most large superannuation funds. For instance, SMSFs can hold direct property, unlisted shares, artwork and other not-so-common investments. And SMSFs can invest in their selection of investment fund managers and direct shares-which they can or cannot do with a large fund, depending on their investment choice.
SMSFs offer more flexibility of borrowing within your fund for investment. Small business owners can have their commercial property (where the business is run) owned by the SMSF and then leased back to the business. This gives a steady income for SMSFs and frees up any capital in order to grow your business and provide secure tenancy.
Estate Planning
Your superannuation benefits are not necessarily controlled by your will but there are useful estate planning benefits involved with SMSF. SMSFs offer more control and flexibility over a member’s estate plan that can ensure the funds go to the right people, at the right time, in the most tax efficient way possible. SMSFs can make non-binding death nominations, unlike older super funds which have to be continually updated. A non-binding death nomination does not expire, instead, the members of a super fund are sent a letter every 3 years to remind them of their beneficiary status.
You can also structure tax effective income streams to your dependants with control around when they receive the pension income and lump sum and to effectively take care of that person long after your death. A simple example may be that you want to nominate to pay a tax dependant such as a disabled child an income of $60,000 a year for 10 years, rather than pay a lump sum of $600,000 immediately upon your death. Another option may be that you pay $120,000 upfront to fund large expenses and then pay the remaining balance evenly over the next 10 years. This strategy is very powerful when the dependants are young children who are not in a position to manage their own money, or where they are spendthrift beneficiaries such as problem gamblers.
Tax Control
You can have more control and flexibility over the tax position of your fund. Through strategic investment planning (such as maximizing franking credits) or internal structuring, tax can be significantly reduced (and in some cases, completely eliminated with refunds paid from ATO), particularly for those in retirement. There is considerable flexibility when it comes to dealing with the taxable liabilities for your superannuation fund, as the fund only does one tax return even though there may be up to four different members with multiple pension accounts. There is also a strategy that exists whereby current and future members can benefit from great tax reductions for future years from the death of a member.
Cost Savings
For many people (not all, depending on your account balance), the costs of running your fund can be considerably lower than retail, industry or other commercial super funds, especially when the fund balance is high-more than $200,000. The majority of costs for an SMSF is the completion of the annual administration and audit requirements of the fund. There is no industry standard in terms of costs, however, if we look at the average cost of an average fund, then the cost would be around $2,000 per annum. On the other hand, commercial super funds tend to charge as a percentage of your fund balance, with a range usually at 1% to 2% pa depending on the fund and underlying fund managers used. So if you’ve got a flat cost of around $2,000 per annum for your SMSF, then the more money your SMSF has, the lower the percentage cost will be. For example, if you have around $300,000 in your SMSF (and remember that can be made up of 4 members balances combined)) and you pay $2,000 per annum for annual administration, audit and compliance then your cost is 0.66% pa compared to most commercial super funds. Compared to most funds, this is very cost effective.
Asset Protection
Asset protection can be a key consideration for many people, especially business owners and superannuation can be a structure that protects the members from litigation and bankruptcy. In either of these events, your super benefits are likely to be protected, even in cases where you withdraw some of these benefits to live on. This protection can be important in the event that something goes wrong (particularly for small business owners and professionals). For example, a business owner may only be left with their super balance as the only remaining asset in the event of a failing business venture. However, as superannuation is intended for retirement, superannuation balance cannot be used to prop up a struggling business.
SMSF is very popular today and has become most powerful retirement savings structure in Australia. You must be willing to take on the responsibilities of an SMSF trustee, and a good Financial Planner will help guide you and educate you along the way.
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