If you are considering making the change to a Self-Managed Super Fund (SMSF), you are certainly making the right choice in reading up about it first. SMSFs tend to have a love/hate reputation, depending on who you’re speaking with, which makes it all the more confusing to determine whether or not it is right for you. To help you get a balanced perspective, here are six advantages and disadvantages of having a Self-Managed Super Fund.
1. Disadvantage: Complex to do without help
While its name implies it is a fund you can manage yourself, most people with Self Managed Super Funds are not experts in finance and superannuation, so DIY is not the right choice. The reason for this is the massive costs and stress you will incur if you make any errors in setting up or managing your super fund. That’s why many people enlist the help of an SMSF Accountant to make sure everything is set up properly, giving them the best benefits possible. Some may even need the help of a business finance law expert.
2. Disadvantage: You may not be able to live overseas
In the majority of instances, SMSF members are required to reside permanently in Australia. This is due to legality concerns and risks associated with residing overseas. If you have plans to live abroad long-term, or you wish to permanently relocate one day, it could make your SMSF non-compliant. This will, of course, vary on a case-by-case basis, so be sure to seek professional advice on this matter before you make any final decisions.
3. Disadvantage: Expensive
There are a lot of fixed costs associated with running a self-managed superannuation fund. These are separate from any accounting or professional support fees you may also be paying to maintain this type of fund. If the value of your asset portfolio is not at a certain level, the management fees of your SMSF may not be worth the return. Typically, these superannuation funds are suitable for people on higher incomes with high-value assets.
4. Advantage: More investment freedom
One of the biggest reasons people prefer Self-Managed Super is that it significantly broadens your investment opportunities. Essentially, it can be used to invest in any asset class available now or in the future, from art to cryptocurrency.
For some business owners, an SMSF can be used for the purchase of commercial real estate or to borrow to purchase an asset. There is, however, a selection of stringent compliance criteria that need to be met in any of the above examples or other investments made using your SMSF.
5. Advantage: A stronger sense of control
Many people choose SMSFs because of the greater sense of control and flexibility they offer as opposed to traditional super fund providers. Having an SMSF means that you are both the member and the trustee, which allows you the ability to adjust your fund as regularly as you like to suit changing markets, your investment interests, or any other needs you may have.
6. Advantage: The option to pool your Super
A unique advantage of having a Self-Managed Super Fund is the option to pool your fund with up to three other people. Whether this involves your partner, another family member, or business partner, it can be a great way to invest in assets you would not have been able to as an individual.
Now that you’ve brushed up on some of the pros and cons of SMSFs, you should hopefully have a better idea of whether you are leaning towards or against this option.
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