Taking Control of Your Retirement: 9 Tips For Setting Up A Self-Managed Super Fund
09 May 2019
Over the past decade, more and more Australians have turned towards Self-managed super funds (SMSFs) as a way of planning their retirements with greater control and transparency.
While self-managed super funds can have many benefits, managing them requires a significant amount of time and dedication, not to mention a substantial understanding of investments. With the help of a financial advisor, like AR Advisors, you can learn how to make the most of an SMSF and minimise the risk involved.
A self-managed super fund is advantageous for anyone who wants more engagement and control over their retirement funds. If you’re considering setting up an SMSF, read this guide to find out what you need to know to get started.
1. Arrange for a Trust Deed to be prepared
The first step for starting an SMSF is putting in place a trust deed for the fund that will explain how trustees are appointed and what their powers are. It must also set out when and how fund contributions and benefits will be paid. A trust deed is a legal document and AR Advisors can assist in having a deed prepared for you.
2. Nominate Trustee(s)
The rules governing SMSFs require all members of the fund to also be trustees. This means that they’re legally responsible for the actions of the fund, must lodge annual tax returns, prepare accounts and have the accounts audited. The rules currently allow SMSFs to have up to four members.
3. Calculate Your Costs and Fees
A major step on the road to managing your SMSF is keeping abreast of the costs involved with setting up and maintaining it. Besides an initial fee that starts at a minimum of $500, there will be ongoing charges for accounting and auditing that will vary, depending on your needs.
4. Know Your Responsibilities
As its name suggests, the SMSF entails being managed by its trustee. This also means that you will have to be aware of the legislation that governs all of your investments and make decisions that comply with these laws. Therefore, it is important to make sure you have time to learn the laws that govern SMSFs, so you can manage your fund accordingly.
5. Create An Investment Strategy
The law actually requires those with an SMSF to have an investment strategy for their fund. It should consider the risks and potential returns from different investments, the fund’s expected cash needs and its ability to meet existing and future liabilities. It should also include a mention of the make-up of your fund’s investments and the amount of diversification there will be. When developing the fund's investment strategy, the trustees must also consider the need for any insurance coverage for the fund members.
Having a strategy documented can help keep you on track and assist you in making better investment decisions.
6. Record Every Transaction
Be meticulous with your records. Record keeping is one of the many rules that an SMSF trustee must abide by. Every transaction made involving the fund must be available to be examined by auditors, so it’s important to keep your records well ordered.
7. Do Not Set Up A Fund To Illegally Access Your Super
The instance of people setting up SMSFs to illegally secure the premature release of their superannuation benefits has increased in recent years, and as such the ATO has cracked down on this.
It can be tempting to access money from your SMSF bank account - especially in extenuating circumstances such as when a business is in financial difficulty. This can result in significant penalties and criminal sanctions, so it’s just not worth the risk.
It’s important to note that there are legal ways to access part of your super on financial hardship or compassionate grounds. Talk to your accountant or financial advisor for more information on this.
8. Know The Rules For Related Party Transactions
An SMSF gives you the flexibility to invest in almost anything so long as it is with an unrelated party, is in accordance with the SMSF’s trust deed and investment strategy, and is conducted commercially. That being said, there are several rules that surround how an SMSF can deal with related parties. Transactions between related parties (i.e. spouses, relatives or business partners) have restrictions, so it is highly recommended that you are aware of them.
9. Pass The Sole Purpose Test
To pass the sole purpose test, you need to make sure that your SMSF is being run for the sole purpose of providing retirement benefits to you or your dependents. Any investments that give additional returns or benefits which can be enjoyed by the trustee before retirement are not allowed.
Having a self-managed super fund comes with many advantages, but also many responsibilities. And they aren’t right for everyone. Here at AR Advisors we can help you determine if an SMSF is right for you. We can also work with you to manage your SMSF and minimise your exposure to risk. We employ the latest technology and software, along with highly experienced staff, to provide you an efficient solution at a competitive price.
Get in touch today to find out how we can help you take control of your retirement with a self-managed super fund.
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