Retirement planning is essential. Since you can’t work and earn a living forever, you need to be financially stable upon retirement. Having enough savings when you retire allows you to enjoy your life and reap the benefits of your years of hard work. The years following your retirement should be the perfect time to relax, have fun, and accomplish all the things on your bucket list.
That being said, you need to save a considerable amount of money in preparation for your retirement. Luckily, there are many ways to secure more savings and help you plan for your retirement. One of them is setting up a self-managed superfund or SMSF.
If this is your first time hearing about SMSF, continue reading this article to learn more.
What Is A Self-Managed Superfund?
Essentially, a self-managed superfund refers to a private super fund wherein the investments can be self-managed. This means that you and other members will be responsible for handling investment strategies and complying with rules and regulations, including taxation laws.
That being said, a self-managed superfund allows you to have control and say about the way your retirement investments are managed. This is why SMSF has become one of the preferred vehicles for investment. For instance, if you want other alternative assets added to your investments like cryptocurrencies, then setting up a self-managed superfund might be an excellent option. You can read this post for more information about crypto SMSF.
How Does A Self-Managed Superfund Work?
A self-managed superfund (SMSF) is designed to provide financial resources to members during retirement. The trustees control all the investments under this fund. Generally, an SMSF has two trustee structure options to choose from. These can include:
- Individual Trustee: Under this structure, each fund member will be appointed as a trustee. Usually, the fund would have a minimum of two trustees.
- Corporate Trustee: Under this structure, a specific company will serve as a trustee, and each member will be a director.
Regardless of the trustee structure you pick, an SMSF trustee has the same duties and responsibilities to comply with. For instance, they should be in charge of the proper implementation of a good investment strategy and making sound decisions for the benefit of the fund. Also, they should be responsible for maintaining essential records, organizing audits, and preparing tax returns.
Because of these obligations, trustees can hire SMSF specialists to handle the accounting and tax-related tasks on their behalf. But despite the outsourced administrative assistance, you should be mindful of your duties and responsibilities as a trustee, which include managing the fund containing crypto and other valuable assets.
What Are The Common Requirements Of SMSF?
- All members of the fund should be trustees. To become a member and, at the same time, a trustee, you should give your consent and accept the responsibility by signing a trustee declaration. You also can’t have an employer-employee relationship with another member and shouldn’t have been disqualified as a trustee by a court and other designated government authorities.
- No trustee should be remunerated for the services rendered as a trustee.
- The fund can’t provide financial assistance to any member.
- The fund is prohibited from acquiring any asset from a member or related person unless it is a listed managed fund or share. These assets usually refer to investments which are listed on a legitimate market exchange, including the stock exchange. By being listed, it means that the investors can conveniently buy and sell assets regularly without a hitch.
What Are The Pros And Cons Of SMSF?
To better understand SMSF, you have to get familiar with the pros and cons of setting up the fund for retirement. Some of the common benefits of a self-managed superfund can include:
- It comes with greater flexibility in terms of tax obligations. It uses certain strategies to obtain tax concessions for your investments.
- It can be an excellent asset protection strategy against the risk of lawsuits and bankruptcy.
- It creates opportunities for better estate planning efforts.
Like other investment funds, a self-managed superfund also has drawbacks:
- Managing an SMSF can be a daunting and time-consuming undertaking. It also requires proper knowledge of basic investment principles to ensure everything runs smoothly. However, these requirements might cause stress and anxiety because of the pressure associated with the fund’s administration.
- If you’re not vigilant about tax fees and regulations, you might be penalized.
- An SMSF might come with additional costs, such as supervisory fees and administration fees.
It’s important to prepare for retirement as early as possible. Without adequate financial resources, retirement can be challenging for you and your family. This makes a self-managed superfund worthwhile for your post-work years. Therefore, if you consider this investment fund, keep the information mentioned above to know how to navigate SMSFs. But it might be best to ask for professional advice to ensure you’re making the right financial decision in this regard.