Mozo guides

A comprehensive guide to self-managed super funds

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When thinking about your retirement, one of the decisions that you will make for your superannuation is the choice between a managed fund, or a self-managed fund. 

In this guide, we’re going to be covering what you need to know about self-managed funds, or SMSFs as they are widely known.

We’ll run through the key aspects of SMSFs, from the way they work, to whether the benefits outweigh the risks, and answer many of the most common questions about managing your own super. 

So, without further ado, let’s get started.

What is an SMSF?

A self-managed super fund, or SMSF, as the name suggests refers to a superannuation fund that you manage yourself. Just as with a standard superfund, with an SMSF you cannot access the funds in the account until you reach retirement age (67 years old).

This type of fund can have up to 6 members, and all are responsible for managing the SMSF and its investments. These members are either trustees (someone who keeps assets in the trust for others) or directors of the corporate trustee (who usually stand to benefit from the trust as beneficiaries).

Some State and Territory laws have restrictions when it comes to how many people are allowed to be trustees. To ensure you comply with the trust laws in your state or territory, you might consider seeking professional advice.

How does an SMSF work?

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An SMSF works similarly to other super funds in that contributions are made to build up the assets in the fund. The money that is put into an SMSF might come from your employer, or any voluntary contributions you make to the fund. The money is usually then invested across a range of assets to grow your super fund balance. 

This fund type is privately managed, so it’s up to you and other members to adhere to compliance, ensure you pay any relevant taxes, and keep the SMSF fund’s records up to date. 

What are the benefits of an SMSF?

There are several benefits to having an SMSF which might include:

  • Greater flexibility and control over your investments. 
  • Potential to save money on fees with an SMSF. If your super balance is more than $500,000, what you’ll pay to maintain the fund may be lower than with an industry or retail fund. 
  • Pool your fund together with your family or spouse for more investment opportunities, it’s also possible to do so with an SMSF.
  • By adhering to the laws and rules set out for an SMSF, you might see a tax benefit as a complying SMSF. Generally speaking, the fund’s income is taxed at a concessional rate of 15%. 

What are the risks of an SMSF?

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An SMSF doesn’t come without its disadvantages, however. Here are some potential risk factors to look out for when considering an SMSF:

  • If you aren’t well-versed in tax laws, you may be susceptible to breaching compliance. Being a non-compliant fund could land you in trouble with the ATO as a trustee of an SMSF.
  • Having an SMSF also means that you lose access to any compensation scheme with the government if you experience theft or fraud.
  • You may have a lot more control over your investments, but it won’t necessarily give you the returns you were hoping for.

SMSF versus other super funds

There are key differences between an SMSF and other retail or industry super funds. Here are some you might note:

Other funds
Trustees have a lot more control over specific assets they’d like to invest in with the fund.
Investments are non-specific, but there is some flexibility in choosing how much risk you’re willing to take on.
Cost may be higher due to finding your own premium insurance.
Potentially at a lower cost, as larger funds may have a bulk discount.
Independent dispute resolution at your own cost.
Possibly eligible for  statutory compensation through the Australian Financial Complaints Authority (AFCA).
No more than 6 members. Trustees are responsible for managing the fund.
No limit on the number of members, generally speaking. These funds are also typically managed by licensed professionals.

If you’ve decided to go ahead with an SMSF, you might want to know what setting up the fund looks like. 

How to set up an SMSF

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According to the Australian Tax Office (ATO), there are steps you’ll need to take when setting up an SMSF. It could look something like this:

1. Choose your members and trustees. They might be a spouse, or family members, for example. You can even decide to go solo on this venture.

2. Create a trust. To establish a trust for an SMSF, you’ll need to have:

  • Trustees or directors of the corporate trustee. This is the person who will take charge of decisions associated with the fund, while abiding by the relevant super laws. 
  • A trust deed. It’s a legal document to show how your super fund operates.
  • Assets. To get started, you may contribute a small nominal amount of, say, $10 to hold in the trust, for example.
  • Members to be assigned as beneficiaries. 

3. Establish the trust deed. As it’s a legally binding document, it must be written up by someone competent. 

You might consider hiring a legal practitioner or another qualified professional to prepare the document, and ensure the deed complies with your state or territory laws. 

If you’re a trustee or director, you must have the deed signed and dated within 21 days. This is to show that you understand what your obligations and responsibilities are. It’s also important that the details contained within the deed are always current.

4. Register with the ATO. You may also have the option to apply for an ABN and TFN while registering your fund. It’s possible that having them might save you some money on hefty taxes.

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5. Set up a bank account in the SMSF’s name. It’s so that your contributions, income, and existing super might all be kept in one place to manage the fund’s operation. 

The purpose of setting up a bank account may also be to cover any expenses and liabilities incurred.

6. Include your investment strategy. The written document might explain how your investments are beneficial to the retirement objectives of every member.

Bear in mind that your strategy should be personalised to your situation. It may set out how you intend to invest your super, for example.

7. Come up with an exit strategy. In the event that a trustee is no longer able to perform their duties, (maybe they’ve passed away, or are incapacitated, for instance) an SMSF may not be viable anymore.

If your circumstances have changed and you no longer wish to self-manage your super, you may execute your exit strategy. While having this plan is a requirement, it could also make the winding up process smoother. 

Costs associated with setting up and running an SMSF

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There are some fees associated with having an SMSF, both upfront, and ongoing. Here are some typical costs you might encounter:

  • Insurance
  • Auditing
  • Investing
  • Professional advice - be it from a legal practitioner, accountant, or financial advisor, for instance.

The above are just some factors that may affect how much you pay on setting up your fund, along with maintaining your SMSF. While these fees can quickly add up, the good news is that some of these charges are tax deductible. 

What happens to your SMSF when you retire?

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When you retire, your SMSF will distribute your super in the way that was outlined in your trust deed. So, you may receive your super as an income stream, as a lump sum or even a combination of both.

However, if you decide on an income stream and would like to qualify for a tax benefit, ensure that you have enough cash in your SMSF each year. 

If you opt for a lump sum, it might be paid out in the form of cash or even other assets such as property if they were bought with your SMSF. 

Unsure if an SMSF is right for you?

It can be a time-consuming endeavour to manage an SMSF and it might require you to have a sound knowledge of finance and the law. Before you make the choice to go down this route, it’s best to speak with a financial advisor or accountant. 

If after doing your research you find it’s something that you want to do, you might start to plan your next steps and work towards getting your SMSF established. 

The world of superannuation is vast. So if you’re interested in learning more about it, why not check out our superannuation guides to find out how you can better prepare for your retirement.

Self-Managed Super Funds FAQs

What’s the difference between a trustee and beneficiary?

A trustee is someone who runs the SMSF and makes decisions to benefit every member of the fund. They also have the responsibility of ensuring the fund is compliant with relevant laws. 

A beneficiary, on the other hand, is a member who receives the benefits from the investments in the SMSF.

How much money do I need to set up a self-managed super fund?

There is no minimum amount required to set up an SMSF, though having a balance of $200,000 or more is generally the point at which some people would consider opting for an SMSF. 

Who can be an SMSF trustee and what are their responsibilities?

Anyone 18 years old or older can be an SMSF trustee if they are not a disqualified person, or fall under a legal disability that impacts their mental capacity. 

The ATO has a disqualified person checklist which you can use to find out whether someone is eligible to be an SMSF trustee. As for your responsibilities as an SMSF trustee, it’s to ensure your SMSF is a complying fund by following super and tax laws.

What are my responsibilities if I have an SMSF?

As the objective of an SMSF is to generate retirement benefits, an SMSF must be run for this purpose only. Another responsibility you might have as a trustee is making investment decisions that are beneficial to other members of the fund.  

What can I invest in with an SMSF?

There are a range of investment options available with an SMSF. You might, for example, invest in cash, shares, property or crypto assets. 

Can I buy property through an SMSF?

Yes, you can purchase property through an SMSF but some conditions may apply. The ATO states the purchase of property must be at true market value. But if you’d like to leverage your super to buy a property and take out an SMSF loan to cover the rest, it’s potentially an option you could consider.

What happens to my super if I travel or move overseas?

While there are exceptions, if you plan to travel for an extended period or move overseas, your SMSF may be valid for up to 2 years. After this time, your super may rollover to an industry or retail fund.

If this situation applies to you, it’s recommended that you enlist the help of a professional, such as a financial advisor, to get advice that’s specific to your situation.

How do I close or wind up an SMSF?

There are a series of steps to take when closing your SMSF. It generally involves executing the exit strategy you developed when setting up the SMSF. Additionally, paying off any taxes and associated fees, and rolling over your super funds from the SMSF into a public fund. 

How to avoid SMSF scams?

To prevent your SMSF from getting scammed, avoid clicking on any third-party links, or sharing your password with anyone. Additionally, if anyone offers you early access to your super, be careful. Doing so is actually illegal, and only permitted under very limited circumstances. 

Sophie Wong
Sophie Wong
Money writer

Coming from a background in financial services and criminology, Sophie strives to get others excited about their money journey as they reach their financial goals. She aims to make things like budgeting a fulfilling achievement rather than a dreaded task.