This is one of the most common questions we get from clients on SMSF’s.
The simple answer is there isn’t any one particular factor, but a combination of circumstances that may help you to decide when to start an SMSF and these include:
1) When you have enough the money in your Superannuation
While there is no absolute minimum balance for an SMSF, we suggest not even considering an SMSF when your balance is below $100,000. The main reason for this comes down to the fixed running costs of running an SMSF.
A 2013 research report by **Rice Warner for ASIC on the costs of SMSFs found that individuals with more than $200,000 in assets were experiencing lower running costs than comparable individuals with industry and retail funds.
2) When you have the time and knowledge
While running costs are part of the things to consider, if you want to keep costs to a minimum, then you need to have the time to do some of the legwork yourself.
If you are new to investing, learning how to do, it won’t happen overnight.
The biggest risks to not having sufficient knowledge are being seduced by glitzy advertising into unsuitable and inadequate investment choices – Storm Financial comes to mind – and not understanding your trustee responsibilities.
If you make a mistake and invest in something you shouldn’t, you risk the fund becoming non-compliant and having to pay tax at the highest marginal rate instead of the typical 15 percent tax rate.
That is one of the reasons having the right advice is crucial.
3) When you want to buy commercial property or residential property
One of the things you can do with an SMSF is purchase your business real estate property. If you are about to acquire a business premises, this could make it a good time to establish a fund.
Maybe you’re running your own business, and you want to buy the buildings to operate the company in.
There might be a lot of advantages on a cash-flow basis and also tax benefits in this investment strategy
Some people are not comfortable with shares or other financial investments and are more confident in buying residential property (but not one you already own).
The key aspects are, what is the client comfortable in investing in? And does it suits their investment strategy?
Another point to note is that it is suggested that if you are looking to purchase property ensure your fund is established before you make an offer on the property.
4) Before you retire
There are quite a few experts suggesting to their older clients they should start an SMSF before they retire.
This is a good long-term investment strategy.
It gives you that ability to switch your investment strategy without having to restart your actual pension.
This is particularly pertinent given all the recent changes to social security.
It could potentially mean asset-tested income streams, like account-based pensions and annuities, will be deemed to be earning a certain rate of revenue as prescribed by the government.
These rates will be proposed under the Age Pension income test.
Regardless of these changes, if you are thinking of starting an SMSF, it is probably better to start it before retirement, if possible.
Retirement is a very long time, and we don’t know what’s going to change in legislation and what grandfathering might be in place.
Awesome Lending Solutions strongly recommends you seek the advice of a professional financial planner to make sure an SMSF is right for you before setting one up.
Interested in hearing more about this topic?
Why don’t you join us at our upcoming event on the 4th August at 6.00pm here at Awesome Lending Solutions.
** Source Rice Warner 24-7-15