An SMSF lets you run your own superannuation fund. It gives you more control over how your retirement savings are invested, and, within the rules, the fund can invest, and in some cases borrow, to build your retirement balance.
But an SMSF isn't for everyone. Here are seven things to know before you set one up.
1. How much money it takes
There is no legal minimum balance, but a fund has running costs every year, such as accounting, the audit and the ATO's supervisory levy. Those costs weigh more heavily on a small balance. Find out what your fund is likely to cost before you start, and see the guidance from the ATO and ASIC's Moneysmart on when an SMSF may be worth it.
2. An investment strategy
Every SMSF must have a written investment strategy. Think of it as the plan that guides each investment decision. If you're not sure where to start, speak to a licensed financial adviser.
3. Knowing how to run a fund
If you want to manage the fund yourself, take the time to learn how. It takes effort, but trustees who understand the rules before they start find the fund much easier to run.
4. Tax
A complying SMSF pays tax at concessional rates. To keep those concessions, the fund must follow the superannuation rules every year. Learn how the fund will be taxed before you begin.
5. Estate planning
Think about what happens to each member's super if they die, and who becomes trustee then. Wills and estates law differs between states and territories, and the fund's trust deed sets out how death benefit nominations work. Get advice on this before you set up the fund.
6. Risk and growth
Investments can rise and fall. Spreading the fund's money across different kinds of assets helps manage that risk, but many new trustees don't do it. Remember that super is for the long term: growth builds over many years.
7. Working with your co-trustees
You can hand the fund's administration to professionals, but the trustees still make the decisions together. If they can't agree, the fund suffers. Make sure everyone involved shares the same goals.
If you're a trustee, your accountant or financial planner can help you work through these points.