Q: I am 46 and have about $65,000 in a number of different super funds, and am tossing up whether to roll them all together or invest in a self-managed super fund. I really don’t fully understand what a self-managed fund is, and have heard I can buy property with it. Can you please explain how self-managed super works, so I can work out if it’s right for me?
A. Generally speaking, Australians have the option of using an existing super fund (an APRA-regulated fund), or establishing one of their own with up to three other people, called a self-managed super fund (SMSF).
There’s been growth in the number of SMSFs recently, as a lot of Australians are attracted to the idea of hands-on control over how and where their hard-earned money is being invested.
If you have an SMSF, you’ll most likely need to be a trustee of the fund – and that carries a whole range of ongoing obligations and duties, including setting up trust structures, investment strategies, record keeping and arranging auditing.
One of the benefits of an SMSF is the ability to buy commercial or residential property, with the rental income and any capital gains on the property flowing back to your SMSF. However, buying property within an SMSF comes with restrictions. One of the main ones is that the property must be on ‘arm’s length’ commercial terms – for example, you can’t transfer your existing property into the SMSF and you can’t live in the property and pay rent to your SMSF.
Naturally, there’s lots of advice available to help with managing all those responsibilities but that advice usually costs money. Also, SMSFs aren’t usually cost effective for small amounts of money, so generally the suggested minimum is at least $250,000.
Ultimately, you need to consider whether the benefits you’ll gain from having a SMSF outweigh the costs and the extra responsibilities. You should think about whether you have the time and the money to make it worthwhile. If you want to proceed, you should seek appropriate legal and financial advice about how to structure your SMSF and what you can and can’t do.
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