Like it is the case with other super funds, SMSFs are a way of saving for your retirement. However, the difference between the other funds and SMSFs is that the members of an SMSF act as their own trustees. After setting up one, you are held responsible for running it in accordance with the law. You should also report to ATO on the fund's operations. There are various benefits of SMSFs and these include:
One of the key reasons why SMSFs are popular is the variety of investment choices as well as investment control that the trustees have as compared to the commercial super funds. Trustees have a choice to invest in direct property, direct shares, art work, hedge funds etc. The main benefit is not in the choice but in being able to have an investment strategy that is more sophisticated working on your behalf. For instance, within equities, the ability to access strategies that are derivative based such as hedging through CFD's or covered calls can be an effective way of enhancing returns while at the same time reducing volatility. This can be particularly useful in falling or difficult markets.
Another SMSFs t benefit hat is becoming widely known is the flexibility and control that the trustees have in regard to the fund's tax position. Through internal structuring or strategic investment planning, it is possible to significantly reduce tax or even totally eliminate it using refunds paid from ATO. This is particularly the case with those already in retirement. It is also more flexible to deal with the fund's tax liability since the tax does only a single tax return despite having up to 4 members.
There are new rules that were introduced some time back giving superannuation funds powers to borrow funds certain arrangement. It is possible for SMSF's to utilize these new rules even though they have limited applications in the other funds. This makes it possible for the trustees to buy property in the SMSF as property being a big item may require some borrowing.
For most people, it can be significantly cheaper to run an SMSF as compared to running an alternative retail or even other commercial super funds. However, this doesn't apply for all people and mainly depends on the account balance of the trustee. Though there is no standard cost for the SMSF administration, the average cost ranges from ,000 to 2,500 pa. The commercial super funds charge a percentage of the balance of the fund. This ranges between 1% and 2%. Therefore, if you have an amount of 0,000 in the SMSF and you pay an amount of $ 2000 pa, this will translate to 0.66% pa. This is quite cost effective, considering that the amount could be made of balances of 4 members.
For trustees who are nearing their pension, the SMSF allows a seamless transition into the flexible income stream from accumulation. Like it is the case with most super funds, being able to have a tax free income is surely a big motivation to remain within the fund.
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