Wednesday , June 29 2022

The Know-How Guide To DIY Superannuation Funds

Most often Australians set up their pension funds with a professional company that invests on their behalf and handles tax, administration and compliance issues. In return, you pay a percentage of your assets as an annual fee.

However, if you are not happy with the way your super fund is being managed, there is always the option of taking matters into your own hands. This is the case with more than 800,000 Australians who have taken control of their own super fund. With DIY superannuation funds you are managing your own super which means you have more control and in addition, it will save you thousands on fees. Of course, there are some disadvantages to DIY superannuation which you have to consider along with all the benefits before deciding whether it is right for you or not.

As I said before, one of the biggest benefits is control. You alone decide whether you invest your money in particular companies, a fixed interest term deposit, even a property you can live in after you retire.

Another benefit is the wide range of investment choices you have with a DIY super such as direct mortgages, bank deposits, shares, direct property and managed funds. Also by having more than $300,000 in your super fund, you will be able to operate it for lower fees, less than what conventional superannuation companies charge for management annually. You will also save up on taxes since contributions to your SMSF are tax deductible and you can buy other assets with a maximum of 15% tax payment. Since SMSF can run indefinitely, your family members can enjoy the benefits even after your death.

The downside of a DIY super fund is that it requires great responsibility. Failing to meet super and taxation law may turn out to be disastrous. Penalties tend to be very harsh and include big fines or even imprisonment. In order to ensure that your super fund is performing as it should, you need to be knowledgeable about investing. You can always hire advisers or brokers to help you, but that, of course, will cost you money. You will probably have to rely on experts to do all the paperwork, but it’s worth it.

There is also a certain amount of investment risk since your SMSF is likely to be less diversified than the one chosen by a professional super fund company. Insurance is another issue with DIY superannuation funds. While conventional super funds often come with some insurance coverage, with a self-managed super you will have to independently source all the insurance you need.

You can download all the necessary documents online and set up your own SMSF, but have in mind that the right choice for you greatly depends on how comfortable you are in dealing with legal and financial arrangements.