Costs of operating SMSFs

Is the self-managed super fund expensive?

Costs of operating SMSFs: The one of the disadvantage of a self-managed super fund is that it can be more expensive.

You may be in a fund now where your fees are quite low and you could move into a self-managed super fund.

Let’s say for example you’re going to put $100,000 into a self-managed super fund.

And your accountant says to you that it’s going to cost two thousand dollars a year for your accounting.

These are just numbers.

And then when you set up your self-managed super fund you go and invest in managed funds retail managed funds that have fees of around about 1.8 percent per annum to run those funds.

You’ve got your two-thousand-dollar fee from the accountant and another eighteen hundred dollars in fees from the managed fund.

So you’re looking at around four thousand dollars a year in fees or close to four percent,

which is very expensive to run a super fund you would not normally pay anywhere near that in a retail fund.

Then, you need to be careful that if you’re setting up a self-managed super fund.

That you don’t actually going to a structure that is much more expensive,

to run than what you were coming from.

It’s also potentially subject to more legislative changes just as an example,

there are sections of the superannuation industry supervision act that relate only to self-managed super funds.

Things like investing in collectibles which is a new one that’s about to come out.

Investment on SMSF

They’re now allowing you to invest in art but I don’t think they’re going to allow you,

to have wine collections and fancy cars.

So you need to be careful about things like that.

Okay so what can you invest in if you’ve decided well I can probably do it cheaper what do I really want to invest in.

Under the legislation you must invest effectively for retirement purposes.

So your investment can’t be for today your investment has to be solely for retirement purposes,

to provide you a benefit in your retirement.

Invest as if you were investing for someone else

We also always suggest to trustees that if they take a common-sense approach and say investors,

If you’re investing for someone else that you care about not just someone else.

So if it was my mom if it was my mum superannuation would I want to buy that bottle of wine as an investment.

Now if you’d say now I probably wouldn’t buy that bottle of wine as an investment,

you have to question the purpose or the young what was the reason for making that investment within the fund.

Because you really need to know that you’re investing for the future and for your retirement.

We suggest that you primarily invest in direct investments from a cost point of view.

Now it’s difficult for me to give investment advice to say that a direct investment is either better or worse than a managed investment.

So I’m not trying to say that you will make more money or less money from direct investments.

If you have a self-managed super fund and you invest that money primarily in managed funds, then you could just go to a retail off a super fund and do the same thing and probably pay a lot less money.

And, if that’s your way of thinking you need to question the reasons for setting up a self-managed super fund.

When we say directing in investing in direct investments we are talking about property and,

we’re talking about direct shares because there’s no management fees on direct shares.

In-House assets

In-house assets are described as an investment where the super fund is effectively investing in the trustees.

And members in some form or another so a classic example of an in-house investment from a super fund,

is where the fund lends money to the employer of the members who would traditionally be another company associated with the members.

Up to five percent of the value of the assets of the fund can be invested in in-house assets.

But be very careful in doing that because if you accidentally go over that five percent.

Then you have breach the regulations and you’ve got to have a management plan to get rid of that asset.

Now if that asset is something you really need in your business you then have to sell it.

So that’s something that you need to take a lot of advice on before actually investing in.

Exotic investments

By exotic investments I mean things that most people would not probably want to invest in.

Most people shouldn’t invest in but people want to invest in them,

and we’ve talked about bottles of wine in here tonight.

I would not usually recommend that a person investing wine.

Someone stood up in front of me now and said I am an absolute expert in wine.

I actually run a wine valuation business, and I know that in three years’ time.

This wine will be worth four times as much as what it is now, and I want that in super I would say okay.

If, however someone said my favorite wine is Penfolds Grange Hermitage and I think I should own ten of those in my super fund.

And then one day they get destroyed I would have a lot of questions about that trustee and the way they’re running their self-managed super fund.

Now another thing to remember in self-managed super funds is that you can’t actually buy assets,

from the members of the fund.

That’s again just another legislation that’s been bought out for super funds.

There are limited circumstances where you can do it and you should take advantage of these limited circumstances.

One is business real property so of yourself employed and you own your premises that you operate from you can buy that premises in your super fund and that can have massive tax advantages.

So you should seek advice if you can do that.

Another one is listed shares so if you own listed shares you’re allowed sell those shares to your super fund.

Both of those transactions must be at market value that is a rule.

Retirement options

Now again retirement options aren’t really different between a self-managed super fund or a retail super fund.

Because superannuation is a structure the retirement legislation is the same under all super fund.

So it really doesn’t matter too much but they’re quite good.

So I talked about taking in a transition to retirement pension from age sixty.

You can actually take this pension from age 55 unless you’re my age but from age sixty it is tax-free to you.

So it’s great.

It’s also it also means that the money invested in your super fund, the earnings on that money is also tax-free.

So if you like tax-free income these are a good idea.

And I like tax-free income it’s one of my favorite types of income.

Now a pension from age 65 and when I talk about a transition to retirement pension.

now I mean if you’re still working you actually not allowed just take all of your super when you’re sixty.

If you change employment you can do it but if you’re still working you’re not allowed to take all of your super fund.

But you can take a tension after ten percent of the value of your fund each year.

From 865 your supers yours so you just start a normal pension from age 65 same rules as the transition to retirement pension again tax-free to you and again the earnings in the front are tax-free as well.

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