Deutsch: Sparschwein der HASPA (damals noch Neue Sparcasse von 1864), ca. 1970. English: Piggy bank from German bank HASPA, around 1970. (Photo credit: Wikipedia)
Self Managed Superannuation Funds are becoming more and more popular, but there are a number of things that need to be considered before making the transition from your managed super. This article addresses what a Self Managed Super is, how to transition into one, and finally, what the benefits are.
What is a Self Managed Superannuation Fund?
A SMSF is a way of managing your super fund which gives you complete control over your retirement monies. Instead of giving your money to others to manage, it will enable you to take complete control over where you would like the investments to be made. A SMSF means that you will be entirely responsible for the control of the fund yourself. This responsibility will of course bring with it a legal responsibility for the proper management of funds, but the system allows a high level of control.
How to Transition into Self Managed Super.
Making the transition into self managed super is a fairly easy process, but there are a few factors which need to be considered before you do. The first thing to consider is that there really needs to be around $200,000 in a SMSF before it will become worthwhile running one. The second factor to consider is that there is a huge amount of work involved in the running of a SMSF. You will need to be prepared to take on this workload because there is no option of neglecting the management of your super.
Once you are prepared for the workload and have the funds, you will need to apply for directorship of your SMSF. You can apply for directorship along with family members and other partners which will make each party equally responsible for the management of their respective super. To apply to be a director, you will need to be over 18 years old, and an Australian Citizen with no criminal convictions related to fraud or misrepresentation. Once directorship is approved, you will simply need to open an account for your funds, talk to a financial advisor and then begin making investments according to your business plan.
What are the Benefits of a SMSF?
The main benefit of an SMSF is the fact that all profits made from your investments will be invested directly back into your super rather than being used to pay managers and shareholders. This will allow your super to grow far more rapidly than it would through managed super. Another huge benefit is that of control. As long as you are investing in legitimately sound ventures, there is virtually no limit on where you can invest your super fund. This means that you can actively invest in areas in which you have expertise, understanding and opportunities. Property investment, for example, is a possibility for a SMSF and this opens huge potential for profits.
Legal Considerations.
When transitioning to a SMSF, it is important to understand that there is a legal implication involved. Any mismanagement of funds could potentially lead to a jail term. For this reason, it is essential that all funds are entirely separated from your personal funds. It is sensible to seek income protection insurance as well because it will enable you to remain financially solvent even if you lose your job, and thus you will never be tempted to misappropriate funds.
