How to know if a Self Managed Super Fund is right for you?

AJ Financial Planninginvesting managed fund retirement SMSFHow to know if a Self Managed Super Fund is right for you?

The Self Managed Super Fund (SMSF) sector is the fastest growing part of the superannuation industry as many Australians are choosing the ‘do-it-yourself’ route of an SMSF rather than your more traditional personal superannuation accounts and platforms. If you are considering a SMSF there are a few things to consider…. Is my balance high enough? Technically there is no real minimum for starting a SMSF, but in saying that, the ongoing costs make it an uneconomical option for lower balances. So what should my minimum balance be to start a SMSF? This question really depends a lot on what your accountant charges. Every year your SMSF needs to pay a $321 fee to the ATO which is a fixed cost. You will also need to pay for an external audit (that your accountant will usually organise) and your accountant will need to complete the annual reports and tax returns. These can cost anywhere from as low as $1,000 for a very simple SMSF to as much as $5,000 for more complex SMSFs with high charging accountants. Things that affect the accounting cost for an SMSF include:

  • Number of transactions in the SMSF, both in the cash account and in relation to purchases and sales
  • Number of different investments
  • If your accountant is able to automate transactions and reporting by having managed fund platforms or dividend recording software
  • If you are drawing a pension form the account
  • If you are contributing to the account
  • Type of investments e.g. property investments can be more complicated

So back to the question of how much do you need to justify the accounting costs?  Fees on superannuation funds typically range from 0.5% – 2.5% per year. To keep the numbers simple, if your current super fund charges 1% in fees and your accountant will charge you $1,000 to do the SMSF accounting then you could justify an SMSF with a balance of $100,000 or more. If your accountant will charge $3,000 and your current fund charges 1% then you probably want to have around $300,000 in super before the SMSF will be a cheaper fee option. Are you prepared for the responsibilities? With a SMSF you will be responsible for the decisions relating to your investments and for the ongoing compliance of the fund. If you are the type of person that just wants to let their super sit there and not look at the investments more than once a year, then a SMSF may not be for you – unless of course you use a financial adviser to manage your SMSF for you! So if you like to take control and take an active part of managing your money (with or without the assistance of a financial adviser) then a SMSF can provide this for you. Will an SMSF give me something that my current super fund can’t? If there are specific investments that you want to access, a SMSF is often the only realistic option for you. If you want to use funds in your superannuation to purchase direct property, direct international shares, precious metals and other non-traditional investments, you will usually find that you need to set up a SMSF. If you are happy only investing in managed funds with perhaps a few direct Australian shares, then you can often achieve the same result with a personal superannuation fund that has these options. For larger balances there may be a cost saving even if you are going to invest in managed funds and Australian shares, but you will have to do the sums. Still not sure if an SMSF is for you? If you would like one of the financial advisers from AJ Financial Planning to assess your personal situation and discuss whether an SMSF is appropriate for you, please email info@ajfp.com.au or give us a call on 03 9077 0277 and we can organise an initial meeting for no cost to you!