Are you under 45 and considering taking control of your super? You’re not alone. Self-Managed Super Funds (SMSFs) are becoming more and more popular among younger Australians who want to invest and control their super, with the Australian Taxation Office reporting 13.2% of SMSF members are under 45 as of December 2023.

The days of SMSFs being just for wealthy retirees are gone. With decreasing setup fees and running costs, more young professionals are looking at SMSFs as an alternative to industry and retail super funds. But is it right for you?

What is a Self-Managed Super Fund?

An SMSF is a regulated retirement strategy for 1 to 6 members. Each member must be a trustee or, if you choose a corporate trustee structure, a director. The sole purpose of these funds is to provide retirement benefits to their members, following a strict investment strategy tailored to member needs. Members can choose their own investments and tailor their portfolio to their individual retirement goals.

Things to Consider Before You Start Your SMSF Journey

Financial

• You’ll need a big starting balance – typically at least $200,000
• Annual running costs are around $2,500
• You’ll need a growth plan

Professional Support from a Licensed Financial Adviser

• Regulations require engagement with qualified professionals for:
• Accounting
• Tax compliance
• Annual audits
• Legal requirements
• ASIC recommends working with a qualified financial adviser for administration and investment decisions

Personal

• Time management skills are important as managing an SMSF can be time consuming
• Financial experience is helpful
• Good record keeping skills are important
• Knowledge of compliance requirements is required
• Insurance needs to be considered in your strategy

How to Set Up an SMSF

Setting up a Self-Managed Super Fund (SMSF) requires thought and planning. Make sure you understand the responsibilities and risks of managing your own super. Before you start, take a good hard look at your financial situation, investment goals and risk tolerance. Talk to a licensed financial adviser to get some guidance and find out if an SMSF is right for you.

To set up an SMSF, you will need to:

• Create a trust deed: This is the legal document that outlines the rules for your SMSF.
• Register the fund with the Australian Taxation Office (ATO): This is the key to your SMSF being recognised and regulated.
• Appoint a trustee: Individual or corporate trustee?
• Open a bank account: This account will only be used for your SMSF transactions.
• Get an Australian Business Number (ABN): This is your unique identifier for tax and other business purposes.
• Get a Tax File Number (TFN): For tax purposes.

Getting your SMSF set up correctly from the start will save you headaches and penalties later.

How to Manage Your SMSF

Managing an SMSF is ongoing and requires attention to ensure the fund is being managed in accordance with the law and the trust deed. As an SMSF trustee, you will be responsible for making investment decisions, managing the fund’s finances and ensuring compliance with tax laws and regulations.

Some of the key responsibilities of an SMSF trustee are:

• Investing the fund: You’ll need to make good decisions to grow your retirement savings.
• Compliance with tax laws and regulations: You don’t want to get penalised.
• Good record keeping: Important for audits and financial reporting.
• Lodge annual tax returns and pay tax due: A legal requirement for all SMSFs.
• Ensure the fund is in the best interests of the fund members: Your primary duty is to the members of the fund.

Keep up to date with changes to the law and regulations that affect your SMSF.

Contributions and Rollovers

As an SMSF trustee, you can accept contributions and rollovers from:

• Employer contributions: These are usually made as part of the Superannuation Guarantee.
• Member contributions: These are personal contributions made by the fund members.
• Rollovers from other super funds: You can transfer balances from other super funds into your SMSF.
• Transfers from other super funds: Similar to rollovers, these are transfers of superannuation benefits.

Make sure any contributions or rollovers are made in accordance with the law and the trust deed. And align the fund’s investment strategy with the contributions and rollovers received to achieve your goals.

Investing in an SMSF

Investing in an SMSF requires thought and planning. As an SMSF trustee, you will be responsible for making investment decisions for the fund members.

Some things to consider:

• Diversification: Spread your investments across different asset classes to reduce risk.
• Risk management: Make sure the fund’s investments match the risk tolerance of the fund members.
• Investment strategy: Have a clear investment strategy that aligns with the fund’s purpose and objectives.
• Compliance: Ensure the fund’s investments are in accordance with the law and the trust deed.

Get advice from a licensed financial adviser to make sure your SMSF’s investment strategy is aligned to your goals.

Run Your Own SMSF with a Good Investment Strategy

When managed correctly, SMSFs can offer:

1. More Control: More direct control over your retirement savings than retail or industry funds
2. Investment Choice: Access to more investment options and asset types
3. Borrowing: Ability to borrow to buy direct shares or property (under strict legislative controls)
4. Customisation: Ability to tailor your portfolio to your needs and potentially get better returns

Tax on Income

SMSFs are taxed on their income at 15%. But to get this rate, the fund must be a ‘complying fund’. This means the fund must have a trust deed and a trustee and comply with the law and regulations.

Make sure your SMSF is a complying fund to avoid penalties.

Not sure if SMSF is for you?

If you’re not sure about managing your own super fund when you’re decades away from retirement, there are alternatives. Consider superannuation wrap accounts or small APRA funds (SAFs), which offer more control without the full responsibility of SMSF management.

Note:

As a trustee or director of an SMSF, you are personally liable for all investment decisions. Professional advice isn’t just recommended – it’s required.

Want to explore whether an SMSF is right for you? Contact our team of financial advisers to discuss your superannuation options and create a strategy that aligns with your long-term retirement goals.