What is a Self Managed Super Fund?
Self Managed Super Funds (SMSF), like all super funds, are designed to help you grow a nest egg for a comfortable retirement through savings and investments. However, there is a key difference for an SMSF – its members are also its trustees, and they are responsible for complying with superannuation and tax laws. In short, a Self Managed Super Fund (or SMSF) is a do-it-yourself super.
The pros of an SMSF
One of the biggest upsides to an SMSF is that it offers more freedom to control your investments. You can invest in ways that larger super funds cannot, for example you can hold property, unlisted shares and other uncommon assets such as artwork.
You are also able to invest in things that you would otherwise be unable to afford. By pooling your assets in a superfund with other trustees, you can quickly get onto the investment property ladder and create a plan to maximise your initial investment.
There are a number of other benefits from an SMSF involving taxation, capital gains tax and administrative costs. For more information or to create an SMSF plan, speak to a Reventon advisor.
The cons of an SMSF
While SMSFs are an excellent method of retirement saving for some, there are some elements that might not suit everyone.
As you might expect from the name, an Self Managed Super Fund requires more time from individual trustees to manage their assets and make decisions on investment. Hand-in-hand with this is that trustees of the SMSF should have a good level of investment knowledge and wealth growing techniques.
Trustees should understand a few key rules: that a diverse portfolio is key, to always comply with ATO rules, and to keep up commitment to ensure the best levels of success.
SMSF and property investment
A growing trend for people with an SMSF is to use it as a vehicle to buy an investment property. With the flexibility of an SMSF, trustees can purchase a property, pay for repairs and maintenance, and capitalise interest. You have full control of choosing which property the fund buys, as well as managing the rent and deciding when to sell.
This can be a tax effective way to purchase property, particularly if you are unable to raise equity in your own name. Using an SMSF, you can pool equity to purchase a property asset that will grow in value.
SMSF home loans
Even if you don’t have enough super in your fund, you may be able to borrow the money using an SMSF home loan. An SMSF home loan is useful to boost your super fund after pooling it with other trustees.
To buy an investment property with an SMSF, you could borrow up to 80% of the value of a property. However, keep in mind that rates can be higher than average, and more lenders are tightening criteria or even stopping SMSF lending completely. It pays to get a good broker to provide you with mortgage advice about the path forward.
Important things to remember with an SMSF
Although an SMSF comes with greater freedom than a traditional superannuation fund, there are some key rules around reporting and administering that all trustees should be aware of. While it might be complicated, it is also a potentially extremely lucrative way to maximise your income for retirement.
We highly recommend seeking professional advice to ensure you’re making the right SMSF decisions. The stakes are high, but if you manage your fund correctly, there are plenty of rewards.
At Reventon, we have a dedicated team offering advice on SMSF investment and home loans. By speaking to one of our team at a free consultation, you can gain insights into the best route for you and your SMSF depending on your current financial situation and your future retirement goals.
Whether you’re considering an Self Managed Super Fund, or you have an SMSF in place and you’re looking for advice on investment options, book your free consultation now.