Four factors when choosing to start an SMSF

Superannuation members that fall into the “grey area” of $200,000 and $500,000 who are deciding whether they should move to a self-managed superannuation fund (SMSF) have four factors to consider, according to Heffron Consulting. 

Heffron managing director, Meg Heffron, said the first consideration was the amount and frequency of contributions and it was likely to make sense to start an SMSF for members that were contributing as much as possible and whose accounts were growing quickly. 

“Moving from an APRA fund to an SMSF costs money – there will be tax to pay (that will reduce their balance) when assets are sold to make the move. This can be significant if investments do well while the balance is building quickly,” she said. 

“If an SMSF is going to become a better option in a year or two, starting an SMSF at a time that appears a little too early might well be cheaper in the long run if these costs can be avoided. Conversely, someone in the superannuation grey zone who is approaching retirement is more likely to find that sticking with an APRA-regulated fund is best for them.” 

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The second consideration was the available investment opportunities as there were some investments that were not available in Australian Prudential Regulation Authority (APRA) regulated funds. An SMSF might make sense for those will less than $500,000 who planned to take advantage of some of these opportunities. 

The third consideration was the level of interest and knowledge in managing superannuation. 

“Generally those who opt for an SMSF are attracted by the greater level of control an SMSF gives members, particularly when it comes to investments. But this does require expertise or paying for advice,” Heffron said. 

“If a member is confident finding the right advisers or making their own decisions it can pay off handsomely. Conversely someone who doesn’t feel confident here or doesn’t want to invest their time this way may bet better served by an APRA-regulated fund.” 

The last consideration was residency and planned overseas trips as there were strict rules on super funds to be “Australian” funds that complied with the country’s tax laws.  

“When it comes to an SMSF, these can be hard to meet if most of the members spend a lot of their time working overseas. In that case, it might be easier to build up an APRA fund nest egg while working overseas and look at an SMSF in the future once they have returned home,” she said.