Self-managed superannuation funds (SMSFs) are a great way to take complete control over your retirement. However, in recent years, SMSFs have come under a lot of scrutiny after the COVID-19 pandemic, leaving many Australians to question the legitimacy and safety of having a SMSF.
Fear no more – Auditax Accountants have laid out 5 of the biggest myths surrounding SMSFs, so you can consider whether having one is right for you.
You Need To Be A Millionaire To Open An SMSF
While there are some general advice floating around about how much you should have to create and sustain a SMSF (usually the more money, the better) it is a myth.
First, there are no mandatory minimum balance to open a SMSF, according to the Australian Securities and Investments Commission (ASIC). In 2018-19, ASIC calculated that approximately 15% of SMSF’s had a balance below $200,000, and the average fund straddled between $200,000 - $500,000. You are not expected to be a millionaire open entering or exiting a SMSF.
It is recommended, however, that you calculate higher administration fees, compliance fees, and yearly auditing fees, when considering opening a SMSF. For funds with low balances to begin with, it may not be worth it. Before deciding, talk to an SMSF adviser, such as Auditax Accountants, to see if it’s right for you.
SMSFs Are Risky
Unlike retail and industry funds, where investment decisions are made for the member on behalf of the fund, SMSF’s are solely managed by their trustees. Which, as you can probably imagine, is like having the weight of the financial world on your own shoulders. To run a SMSF, you need to have some level of skill and understanding of investing – but you don’t have to do it all alone. To reduce your risk, you can seek professional advice to review your investment strategy and remove the high-risk factor.
SMSFs Are A Simple Way To Buy Property
Let’s address the elephant in this myth to start off – buying property is never simple. Buying property through a SMSF is actually more challenging to manage and regulate, compared to buying a private investment property. Additionally, you cannot live or rent the property purchased through your SMSF, nor can anyone related to you. So, if all goes pear shaped with your current home or rental, you cannot use your SMSF home as a backup.
You Need To Be The Wolf Of Wall Street To Run A SMSF
You don’t need to be the Wolf of Wall Street to start an SMSF – however, you do need some skills in making investment decisions, and be financially literate. Failing that, finding the right investment advisor can help empower you to take calculated risks when investing your super – and there are a lot of them out there.
They’re A Lot Of Work
This one isn’t a myth actually. They really are a lot of work. In fact, the average cost of running a SMSF works out to be around $6,450. Furthermore, it is suggested you spend at least 8 hours a month reviewing your SMSF investments, minutes, and deeds to ensure it remains compliant. But the benefit are, you can release the funds when you retire directly, rather than jump through leaps and hurdles with industry funds.
While SMSFs are great for some, they're not suited to everyone. If you're considering opening an SMSF, the first step is to speak to an expert.
Auditax Accountants provide smsf auditing
is a professional Self Managed Superannuation Fund (SMSF) auditing firm with offices in Perth and clients all around Australia. Working with complex SMSF concerns and Superannuation legislation requires substantial experience and knowledge.