SMSFs: What Makes These Superannuation Funds So Popular?

20 Dec 2016
Dana Grace

self employed superannuation

Unless you’ve been living your whole life under a rock, you must have heard of SMSFs (Self Managed Super Funds). In case you don’t know what exactly SMSFs are – they are private superannuation funds managed by the members, which means they are also the trustees. Nowadays, many young individuals choose these funds over mainstream ones regulated by the Australian Prudential Regulation Authority because they offer many advantages. In order to help you understand what makes SMSFs such an appealing form of retirement planning, I’ve selected and elaborated the two most important and attractive characteristics of these unique superannuation funds.

1. As I mentioned above, an SMSF is a retirement fund set up and run by maximum four members. This means that if you decide to start your own SMSF you will have both the freedom and the responsibility to manage the fund’s belongings, determine the fund’s investment strategy and select the best investment options in accordance with it, as well as properly prepare certain reports required by the Australian Taxation Office. This characteristic is particularly appealing to people who have the necessary financial and legal knowledge and want to be completely in charge of their and their family’s financial future.

2. SMSFs are extremely popular among self employed individuals. Why is that so? Well, the answer is simple – because if you are self employed you have the right to claim a tax deduction on the self employed superannuation contributions you’ve made to your SMSF. That’s precisely why self employed superannuation contributions are known as concessional contributions (they are taxed at the concessional rate of 15%).

Yes, SMSFs have so much to offer, but they are definitely not meant for everyone. If you don’t have the time or the necessary skills in financial and legal matters to run your SMSF successfully, then you should either choose to hire professional SMSF advisers to do the administration and help you make the right investment decisions for you or you should simply opt for a professionally managed super fund that has DIY investment options. This way you will have the chance to choose which assets you’d like your money invested in (for example, shares, property, or collectibles) without the legal and administrative obligations that come with SMSFs.

Another thing to take into consideration before you make up your mind are the costs associated with running the fund. The costs of investing, accounting, and auditing your SMSF’s accounts may turn out to be much higher than what you expect, which is why you shouldn’t make a hasty decision when it comes to securing your financial future.