SMSF Series Part 1 - Is it right for you?

Home > SMSF Series Part 1 - Is it right for you?

Top 10 things to keep in mind before you commit to a self-managed super fund

Part 1 of a series on SMSFs

   1. An SMSF is essentially a privately run super fund.

Up to six members can pool their savings together to manage and invest as part of an SMSF.

   2. The core purpose of the fund is to provide retirement (or death) benefits.

It’s designed to be collateral for members and their beneficiaries, which means you can’t just use the money for whatever you want, nor will you have unbridled direct access to the funds.

   3. You’ll need to separate your personal money from your SMSF money.

That means a separate bank account, and all SMSF investments should be made in the name of the fund.

   4. You’ll need a written investment strategy detailing how the funds will be used.

Yes, that means 100% into Bitcoin is unlikely to be a prudent strategy (although I do have a few exceptional clients who have done very well).

   5. You’ll likely need an auditor and an accountant to assist.

This is to meet your annual compliance requirements, and it’s never a bad idea to have a professional in your corner when dealing with such a complicated system.

   6. Yes, you can own Bitcoin in your SMSF subject to your investment strategy.

Or any other cryptocurrency, but given that it is still largely a speculative, unregulated market, due diligence must be taken.

   7. Yes, you can potentially own direct property in your SMSF.

But only if you comply with the rules, that is, your property must meet the ‘sole purpose test’ and other requirements.

   8. Yes, you can borrow money to buy property in your SMSF.

It’s called a limited recourse borrowing arrangement, and this strategy has even more rules and limitations, but it’s possible.

   9. You can buy and sell shares, ETFs and managed funds in your SMSF.

This is quite the opposite of your typical traditional super fund, though of course, you’re wearing all the risks.

   10.  Ideally, you’ll have more than $200,000 to start the fund.

This is because they cost more than $2,000 per annum to run plus set up fees. The ATO suggests you should cost it out at around 1% per annum, although that may differ depending on how you invest.

Drawing of piggy bank

When used correctly, SMSFs offer greater control of your money, diversity of investment and a higher overall super. Plus, they can lower your tax and give you a leg-up into various markets, like property, that may have otherwise been difficult to enter.

However, whether it will work for you is highly dependent on your personal circumstances, your financial literacy, the amount of time and knowledge you’re willing to put in, and your desired outcome.

Essential further reading

Before looking into SMSF investment options, I’d highly recommend you read this booklet from the ATO.

They’ve also got a bunch of great videos explaining how SMSFs work and what you need to know.

If you need some help with changing your superannuation investments to an SMSF, please click below and we can work out if you need an accountant or financial adviser to step you through all the ways to reduce your tax and boost your super!

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