Self-Managed Superannuation Funds (SMSFs) are a privately managed long-term investment strategy to secure money until you retire. It typically involves a separate bank account and one to four or even six members who act as trustees of the funds. Based on its structure, the trustees may manage the fund in an individual capacity, or a company is appointed the trustee role.
Their newfound popularity is evident by the fact that in the first quarter of 2022, 605,469 SMSFs were reported with total estimated assets of $892 billion. While self-managed, SMSFs require time, compliance, and understanding of the latest rules and regulations. It’s best to hire an SMSF accountant if you are a beginner. This way, you will receive the right expertise for understanding SMSF laws and taxes, making the entire process easy. Here are some ways opting for an SMSF account can help you maximize your savings:
1. More Flexibility and Control Over Investments
As an SMSF trustee, you have the power to oversee and control where your savings are being invested. You can choose to invest in a wide range of options and even transfer personal funds and shares to the SMSF account. SMSFs allow you to plan and carry out your investment strategy according to your interest and ethics.
Its flexibility enables adjustments to your portfolios as the markets change. This allows you to borrow within your fund for investing. The members involved are able to run an account based on a mixture of pension and accumulation accounts. These trustees can also adjust the investments according to what suits them financially. Additionally, many businesses prefer holding their assets within an SMSF account for their protection, security of tenure, and succession planning.
2. Wide Range of Investment Options
Superannuation funds generally allow you to invest in options such as fixed interest, shares, bonds, and property through managed funds. However, SMSFs offer you a free pass to many additional investment options. These investment assets include:
- Direct commercial or residential property
- Listed Investment Companies (LICs)
- Collectibles like artworks (under regulations)
- Exchange-Traded Funds (ETFs)
- Commodities like physical gold
3. Provision of Full Transparency
An SMSF offers more transparency to its members in contrast to other superannuation funds like industry or retail funds. With an SMSF account, you can track all the transactions performed. You can review the taxes, income received and spent, and monitor where the funds are used in different investments.
In contrast, other superannuation funds do not offer the same regular visibility of your funds’ performance. Instead, you might receive a yearly statement that lacks detail and hence, does not give you the complete control SMSFs do.
4. Tax Management and Concessions
As SMSF accounts give the members control over their funds or asset management, you can also manage the associated tax position. By having full control, you are able to reduce and eliminate tax liability over time.
During the accumulation phase of SMSFs, the tax on your earnings is at a concessional rate of 15%. For the assets or investments held within your SMSF account for more than 12 months, capital gains are taxed at 10%. However, no tax is payable if funds like pensions produce the income within the account. With these concessions and control, you can reduce tax payments on income and grow your savings as you head into retirement.
5. Low Management Costs
SMSFs have another advantage over other superannuation funds in terms of costs. As the account balance grows, a higher management fee is charged with other super funds. However, with self-managed superannuation funds, members are only required to pay for basic auditing and accounting costs. You are only charged for the fund management services you access.
This charged fee is lesser in cost as compared to the ones charged for managing retail or industry superannuation funds. Since SMSFs enable you to pool your assets with other members, it lowers the average yearly management costs.
While private super funds like SMSFs require a lot of work and personal effort in managing the funds, their benefits outweigh the downsides. An SMSF account can offer you better control over your earnings and different investments at a relatively lower cost. You can even conveniently monitor your financial performance and receive tax concessions. All these benefits of opting for an SMSF account can help you maximize your savings for your retirement days.