You should only consider a SMSF if you’re attracted to the key benefits of control, flexibility and the tax advantages. Remember, if you have a SMSF you are also responsible for the administration that includes keeping comprehensive records and arranging an annual audit by a qualified auditor. You must ensure that any funds in your SMSF are invested for the ‘sole purpose’ of accumulating savings for retirement but sadly, many trustees struggle to comply because they don’t understand the rules. If you think you are ready to start your own SMSF just because the share market is down or you think you could generate better returns than your current fund manager, think carefully. Taking control of the investment decisions on what is probably a significant portion of your life savings is a huge responsibility.
The ramifications could have a big say in the quality of your retirement. Given a SMSF is run by related parties, the funds can’t be used for your personal benefit but most breaches of the rules relate to acquiring assets from members or relatives, buying the wrong assets, getting the fund's money confused with their own and providing financial assistance to members and relatives. The key areas of compliance for an SMSF relate to:
To be successful you also need a sound investment strategy that includes an evaluation of your risk profile then building the right asset allocation. We are often asked what sort of balance is required to set up a SMSF?
Research suggests one in four trustees have a balance of more than $1 million and a further 25% have assets of between $250,000 and $550,000. Only one in seven funds in the research done by Russell Investments had less than $250,000 in assets which supports the $200,000 figure proposed by the Federal Government as a minimum level for an economically viable SMSF.