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What to consider before setting up SMSF

Setting up a self-managed super fund is a big step in looking after your own savings and investments, but not one you have to take alone. Every year the self-managed super fund is becoming an increasingly popular option for young investors looking to take control of their own savings and futures. There are however several things that you might want to consider before fully committing to or setting up a self-managed super fund.

Consider talking to the pros

We know that the idea of a self-managed fund has a lot to do with the self – determination and control of personal funds and finances. When first taking this step, it is important that you’re not making any crucial mistakes in the process. One way to avoid financial repercussions later on in the process is to hire a professional to manage the onset of your involvement with your SMSF. Take a step back, hire an expert and worry less about mistakes.

Make sure your SMSF is an Australian Super Fund

This might sound like an over simplified matter, but it has caught people out in the past. It is essential that you make sure that the fund you’re paying into is in fact an Australian super fund. What this means is that you need to have assurance that the fund is an Australian fund all year round. If the fund does not comply with the legislation prescribed by the Australian super fund rules all year round it means that you will not receive tax concessions and in fact you will be taxed at the highest marginal rate on any contributions or investments you may have. Not an ideal situation to be in.

Prepare an exit strategy

No, this is not an attempt to sound like an international spy film, it should be the bottom line. Ensuring you read and fully understand the fine print and Terms and Condition is not in in the future ramifications of access to your own independent finances. If you are setting up a self-managed super fund you need to prepare an exit strategy, allowing you the opportunity to do just that. There are a number of circumstances that can result in the unsatisfactory or unforeseen need to close an SMSF. The most common reasons for this are a breakdown in relationships between the trustees, the incapacitation of a trustee or the death of a trustee. In order to best prepare for this scenario, you can do a number of things including:
  • Understanding the cost of ending or ‘winding up’ a SMSF
  • Implement and agree on specific rules only triggered or implemented during specific scenarios.
  • Make sure that all trustees and directors have equal access to the account statements
  • Consider appointing an attorney or financial advisor to assist you in setting up and/or dissolving a fund.
Taking control of your own fund can be empowering but also scary. While SMSFs give you control over how your retirement savings are invested there is no reason why seeking the support of those in the know wouldn’t benefit you greatly. At Wealth Mantra we would be happy to help you through the process.

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