Understanding the Life-Cycle of a SMSF

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Post 3
14th Feb

Money always remains a constant need in our lives. While we are young, we have parents to finance us, as we grow older we work, earn, invest and learn to save for the future. The sooner one realizes the importance of managing finances, the better. A Self Managed Super Fund (SMSF) is one of the many ways people look at financial remuneration after retirement. Understanding the life-cycle of a SMSF is one of the best ways to actually learn how superannuation works.

Mentioned below are the seven stages of a typical SMSF:

Stage 1: Establishing the SMSF
This stage involves setting up of the Self Managed Super Fund. A trustee is appointed, who gets his own Tax File Number (TFN), Australian Business Number (ABN) and transactional bank account. This allows him to receive contributions and rollovers, make investments and pay out pensions.

Stage 2: Money goes into the SMSF
Once your SMSF is established is when you either make an initial contribution to your SMSF, and/or rollover your super money from an existing commercial super. At this stage SMSF may receive different types of contributions.

Stage 3: Investments during accumulation phase
The next stage is to create a suitable investment strategy considering the account members’ risk profile, aiming to maximise returns. The focus remains on generating as much return as possible from the investments made within the SMSF.

Stage 4: Meeting the condition of release and moving into pension phase
This is where a ‘condition of release’ has been satisfied to release money out of your SMSF. In this stage money can be released on conditions of permanently retiring from work or having reached a preservation age.

Stage 5: Investments during pension phase
The focus in the stage shifts to generating a stable income with lesser risk. Your personal risk and volatility tolerance will probably become lower at this point.

Stage 6: Death of member & passing off of benefits
This is one of the most significant stages of an SMSF cycle. The inevitable stage when a trustee passes away. Depending on the plan, sometimes pension ‘reverts’ to a surviving spouse or if planned well, death benefit instructions are carried out.

Stage 7: Winding up or continuing for current and future members
Upon death of a member, the above decision would depend on the estate planning put in place or the willingness and ability of remaining members to continue.

SMSF lives on in some cases and is passed down to the next generation, that is when we go back to the top of this list and start the life-cycle again.
Have our experts guide you on anything you need to know in regards to SMSF, write to us at [email protected] or call us on 1300 707 326

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