Self Managed Super Funds (SMSFs): What are they and how do you set one up?

Nick Sundich Nick Sundich, February 6, 2024

Self Managed Super Funds (SMSF’s) offer the tools and flexibility that successful long-term investors demand, allowing them increased control over their retirement planning. By taking full advantage of their benefits, you can live with greater confidence knowing your investments are performing in a smart and secure manner.

As an astute investor, understanding what’s involved with establishing an SMSF is essential in order to make informed decisions about managing your wealth for the long haul. Read on to find out more about SMSF fundamentals and insights from our experienced team to help get you started along this exciting path!


What are Self Managed Super Funds?

Self-Managed Super Funds are an increasingly popular option for Australians looking to secure their financial futures. SMSF’s are a type of superannuation fund that allow individuals to manage their own retirement funds, as opposed to having them managed by an external institution. This allows people to take more control over their investments and have greater flexibility when it comes to allocating money across different asset classes, such as stocks and property.


What benefits do they provide?

Benefits of SMSF’s include greater control over your investments and lower fees than other forms of superannuation. With an SMSF you are in control of how much risk you take on, meaning you can make decisions in accordance with your individual circumstances and preferences. Furthermore, the fees associated with running an SMSF are generally lower than what is charged by external funds. This is because the administrative costs are typically borne directly by the members themselves, rather than being passed through to them via a third party such as a superannuation company or bank.

Additionally, when it comes to retirement funds there is often tax advantages associated with using an SMSF compared to other options. As members are able to structure their investments differently, this can result in more favourable tax outcomes for them in retirement. Furthermore, the ability for members to borrow money from within their SMSF’s gives them further tax benefits, as interest charges incurred on loans can be deducted from the fund’s taxable income.

Ultimately, Self-Managed Super Funds offer many benefits for those looking for greater control over their retirement savings and may provide more attractive tax outcomes if properly structured and managed correctly. For these reasons they remain a popular choice among Australians searching for ways to secure their financial future and ensure they have enough money during retirement.


How to set one up

Establishing an SMSF can seem intimidating at first, but when broken down into small steps it is much more manageable. The first step to starting an SMSF is to decide if it’s the right solution for you. An SMSF can be beneficial in that it allows you to take control of your investments and retirement funds. However, it also requires compliance with regulations set by the Australian Tax Office. It’s important you understand all the rules and regulations before deciding to set up an SMSF.

The next step is to assess whether or not you are eligible for a SMSF. To be eligible, there must be no more than four members who are all trustees and beneficiaries of their own fund. As trustee, each member must agree on the way their trust will be managed and this needs to be documented in a trust deed which outlines the rights and obligations of the trustees and beneficiaries.

You will then need to open an account with an approved financial institution, such as a bank or credit union and register your fund with the ATO using the online service Super Fund Registration Application through myGov. This process usually takes around 10 working days although applications can take longer if additional information is required. Once registered, you can then establish bank accounts for your fund, create a tax file number (TFN), obtain insurance and start investing in assets such as shares, property or term deposits.

It’s important to remember that setting up an SMSF involves taking on legal responsibilities so make sure you understand what’s involved before getting started. Seek professional advice from a qualified accountant or lawyer if necessary as they can help ensure everything is done correctly and that your interests are protected.


How Much Money do You Need to Set Up a Self Managed Super Fund?

A Self-Managed Super Fund requires a significant amount of capital in order for it to make sense and for you to be successful. The exact amount you will need will depend on the nature of your SMSF and what your goals are. Generally speaking, the minimum amount needed is around A$200,000. This money can come from any source, including savings accounts, investments, or even from borrowing money.


How to manage an SMSF once it is set up
1. Abide with legislation and keep up to date with it

After registration, trustees must ensure they comply with relevant legislation and regulations by following specific administrative procedures mandated by law.

These include appointing auditors, developing investment strategies and preparing annual accounts each year.

It is also important for those managing their own SMSF to stay up-to-date on changes in legislation or regulations so they can adjust their strategy accordingly to remain compliant.

To do this trustees should regularly review their investments, benchmark performance against similar funds or seek advice from expert advisers if necessary.


2. Consider using SMSF specialist software

To help manage these responsibilities effectively it may be beneficial to use SMSF specialist software which provides assistance with record keeping, reporting requirements and compliance obligations.

This can help simplify some of the more complex aspects of running an SMSF such as calculating contributions caps and assessing transfer balance caps when dealing with pension phase members.

Such software can also help with transitioning from accumulation phase back into pension phase when withdrawing money from superannuation accounts.

In addition, there are several service providers who offer additional support such as actuarial services and tax advice when setting up or managing an SMSF.

These providers have access to sophisticated technology which helps them assess market trends quickly so they can provide accurate investment advice tailored toward individual needs in terms of risk appetite and growth potential.


Stocks can be good for SMSF, but diversification is the key

Once your Self Managed Super Fund is up and running, it’s time to invest. You should always diversify your SMSF investments across multiple asset classes, like stocks, property and bonds, depending on your age and targeted retirement date. Stocks usually make up a significant amount of an SMSF’s assets and its important to pick the right ones given your current risk profile. Smart investing requires quality research and staying up to date on current affairs, both of which are time-consuming.


Setting up an SMSF is a big commitment

Overall, setting up an Australian SMSF has many advantages but it should not be undertaken lightly due to its complexity and time consuming nature.

They also carry additional risks which require careful consideration before undertaking this responsibility.

With thorough research, dedication and preparation however those willing to commit can reap considerable benefits in terms of financial security both now and into their retirement years for themselves and their families.


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