Should you invest using SMSF? We give you the pros and cons to decide whether SMSF is right for you
In recent years, Self-managed Superannuation Funds (SMSFs) have become a popular retirement investment choice for many Australians. While it’s a great way to take control of your financial future, the complex and sometimes conflicting information available can be daunting and confusing for many.
Before we begin, this information is general and for educational purposes only. Our aim is to demystify SMSFs by giving you the pros and cons so that you can decide whether to pursue this path. Of course, the best course of action is expert advice from a professional who can provide information tailored to your specific circumstances.
The Pros
1. You are in the driver’s seat
One significant advantage of an SMSF is the level of flexibility and control it gives you. As a trustee of the fund, you decide where to invest the funds to suit your specific strategy and goals. Simply put, you choose which baskets to put your “eggs” in – whether in property, shares, collectibles or how much to put in each “basket”.
2. Cost efficiency
SMSFs can be more cost-effective than traditional retail or industry super funds. This is because the running costs of an SMSF are fixed, which means that as the fund grows, the costs will reduce proportionally. In traditional industry or retail funds, the running costs are usually a percentage of the overall balance.
3. Tax benefits
While SMSFs are taxed at the same rate (15%) as other superannuation funds, an SMSF will allow you to easily utilise tax strategies such as franking credits and capital gains tax management to minimise your tax liability.
4. Estate planning
With SMSF, you have greater flexibility when it comes to estate planning. You can tailor the fund’s rules to ensure your superannuation benefits are distributed exactly how you would like them to after death.
The Cons
1. Time consuming
Managing an SMSF requires a significant time commitment, which many people may not have.
2. Costs may be higher
The fixed costs of running an SMSF are high. If your fund balance is low, this can drain a large portion of the fund.
3. Required expertise
Running an SMSF fund requires you to understand and comply with all regulatory requirements (which are often changing), and penalties for non-compliance can be severe.
4. Investment risks
As with all investments, there is a risk of making a poor investment choice. You risk negatively impacting your fund balance without a professional fund manager's guidance.
The key takeaway
Deciding whether to invest through an SMSF will require a thorough understanding of your goals, circumstances, and the regulatory environment. While the financial freedom and benefits can be attractive, there can also be significant pitfalls.
We recommend learning all you can about SMSFs and speaking to professionals for tailored advice before considering whether an SMSF is right for you.
RPN can connect you to the right people
At RPN Global Sales, we can connect you to financial advisors and tax accountants qualified to give you expert advice based on your circumstances and financial goals. Our resident tax expert, Lily Torio from Savvy Tax, is an experienced SMSF tax consultant who can answer any questions about SMSFs and property investment and help you set up your SMSF. Contact us today.
