Good reasons for starting a SMSF
People choose to set up a Self-Managed Superannuation Fund (SMSF) for various reasons, driven by the desire for greater control, flexibility, and potential financial benefits. Here are some common motivations:
People choose to set up a Self-Managed Superannuation Fund (SMSF) for various reasons, driven by the desire for greater control, flexibility, and potential financial benefits. Here are some common motivations:
- Control Over Investments: SMSFs allow individuals to have complete control over their investment decisions. Trustees can choose from a broader range of investment options, including direct property, collectibles, and private company shares, which may not be available in standard superannuation funds.
- Investment Flexibility: SMSFs offer the flexibility to tailor investment strategies to personal preferences and financial goals. Trustees can respond quickly to market changes, adjust asset allocations, and take advantage of investment opportunities as they arise.
- Cost Management: For those with substantial superannuation balances (generally recommended to be over AUD 200,000), SMSFs can be cost-effective. Fixed costs such as administration, compliance, and audit fees can be spread over a larger asset base, potentially reducing the overall cost per dollar invested compared to retail or industry funds.
- Tax Management: SMSFs provide opportunities for effective tax planning. Trustees can strategically manage contributions, withdrawals, and the timing of asset sales to optimize tax outcomes. This can be particularly advantageous in managing capital gains tax and maximizing tax-free income in retirement.
- Estate Planning: SMSFs offer greater flexibility in estate planning. Trustees can tailor the fund's rules and beneficiary nominations to suit their specific estate planning needs, ensuring that superannuation benefits are distributed according to their wishes upon death.
- Pooling Family Assets: SMSFs allow for the pooling of superannuation assets for up to six members, often within a family group. This can enable more significant investment opportunities and potentially lower costs per member due to economies of scale.
- Borrowing for Investment: SMSFs can borrow to invest in property or other assets through Limited Recourse Borrowing Arrangements (LRBAs). This can enhance investment returns through leverage, although it also introduces additional risk and complexity.
- Transparency: With an SMSF, trustees have full transparency and oversight of their superannuation investments, fees, and performance. This level of transparency can provide greater peace of mind compared to being in a large superannuation fund where decision-making and fee structures might be less clear.
- Ability to Consolidate Superannuation Accounts: SMSFs can simplify financial management by allowing individuals to consolidate multiple superannuation accounts from various funds into a single, self-managed fund. This can lead to more streamlined administration and potentially lower overall costs.
- Customized Insurance Options: SMSF trustees can tailor their insurance cover to better meet their needs, rather than being limited to the default options provided by retail or industry super funds.