Whether your retirement plans include exploring the country in a caravan or simply spending more time with the grandchildren, your superannuation will determine how well these plans are realised.

A self-managed super fund (SMSF) can be appealing because it allows people greater control over their finances and investments, yet SMSFs also come with risk and responsibilities.

Here’s what you need to know about an SMSF including setting it up, the benefits, and important requirements to keep in mind:

What is an SMSF?

A self-managed super fund is a superannuation fund where its members are also the trustees, meaning they oversee the fund’s operations and its investments.

Members are able to run their SMSF for their benefit alone but are also responsible for complying with the super and tax laws.

How do I set up an SMSF?

When it comes to setting up a self-managed super fund, it’s important to follow a number of important steps:

1. Choose a trustee

All super funds require a trustee and a member. There are two kinds of trustee arrangements: corporate and individual.

For self-managed super funds, corporate trustees are recommended because the assets of the SMSF are kept separate from personal assets.

2. Complete tax and legal requirements

It’s a legal requirement that an SMSF trust deed is created. A trust deed is prepared by a lawyer and outlines the rules of the fund.

The fund will also need its own Tax File Number (TFN) and an Australian Business Number (ABN).

3. Develop an investment strategy

It’s a legal requirement that every fund must have an investment strategy that addresses the needs of the member, as well as issues such as risk, liquidity, diversification, and the inclusion of life insurance.

4. Open a bank account

The bank will normally require the self-managed super fund’s ABN and TFN, as well as a copy of the fund’s trust deed.

Once the bank account is open, you can start to receive contributions from members and/or employers, as well as roll your existing superannuation funds into the account.

How much money is needed to set up an SMSF?

It’s advisable to have $200,000 – $250,000 in savings before you consider opening a self-managed super fund.

There are administration and compliance costs associated with an SMSF and you want to make sure the fund’s income is greater than those costs.

What are the benefits of having an SMSF?

There are many benefits to having a self-managed super fund. This includes the choice of where to invest your money, flexibility to adjust and change investments, and the ability to align your investments with your personal values.

An SMSF also allows you to combine your superannuation assets with up to five other members such as partners or family members, resulting in a larger fund with greater assets and increased investment opportunities.

Self-managed super funds can invest in assets such as shares, cash and term deposits, bonds, and physical assets such as gold or property.

Extra care is required when investing in property, though, because strict laws apply. For example, residential property cannot be acquired from a relative or be lived in or rented by a fund member.

What are the risks and responsibilities of having an SMSF?

While SMSF members enjoy the ability to control the fund’s decisions, they are also responsible for complying with the law, and are also personally liable for all the fund’s decisions.

With responsibility comes risk. For example, if you lose money through theft or fraud, you won’t have access to any special compensation schemes.

Also, moving from an industry fund could mean the loss of associated insurance.

The fund could also be impacted if there is a relationship breakdown between members, or if a member dies or becomes ill.

What SMSF administration and reporting is required?

There are legislated administrative obligations with starting a self-managed super fund.

These include appointing an SMSF auditor and valuing the fund’s assets. You are required to lodge annual tax returns and report transfer balance cap events.

It is necessary to keep detailed records and make sure your tax office details are up to date.

Speak to the SMSF professionals

There are harsh penalties for non-compliance of SMSF laws, and if you’re thinking about setting up a self-managed super fund, it’s important to first speak to a professional.

LDB Group are the experts in the establishment, ongoing administration, and compliance of SMSFs.

We have more than 20 years’ experience in self-managed super funds, helping hundreds of people take control of their retirement savings.

Set up a meeting with one of our superannuation specialists, who can help you decide if an SMSF is right for you and offer other solutions to support your retirement savings goals.

Give us a call on (03) 9875 2900 or send us details via the contact form below.