Self Managed Super Funds (SMSF) are an increasingly popular retirement savings choice for Australians, with more than 560,000 funds totalling $590m in assets as of the end of 2015. If you are considering swapping from a managed fund to a self managed fund, here are four points to consider before you decide.
Will you still receive your employer guaranteed contributions? Yes. Assuming that your fund has been set up correctly, it will be a complying fund that is able to receive employer guaranteed contributions. As with any change to your superannuation fund details, you will need to notify your employer of the change and confirm the necessary information. It is also work checking after a few months to ensure that your employer’s contributions are being deposited successfully (this doesn’t relate to SMSFs specifically, you should be checking this point on an annual basis no matter what fund you have, and especially if you change funds).
Are my contributions tax deductible? Pre-tax contributions including employer guaranteed contributions and salary sacrifice contributions are capped at $30,000 – $35,000 per year depending on your age and are tax deductible for your income tax return. They will then be taxed at the superannuation fund rate of fifteen percent, which is the same rate for managed and self managed funds. After-tax contributions are additional contributions you can make up to the non-concessional contributions cap of $180,000 per annum are not tax deductible; however, because you have already paid tax on the money, it is not taxed once it is in your superannuation fund.
Who pays the fees for the fund? The fund is a separate entity, so the fees are actually paid out of the fund itself. Many people consider changing from managed funds to self managed funds in the belief that they will save on fees. While this is true, there are still costs involved (such as undertaking an annual audit). Because these costs tend to be at a flat rate while managed funds tend to be a percentage of the account balance, SMSFs become more cost effective for larger account balances. Estimates vary, but it is generally agreed that a SMSF doesn’t become more cost-effective than a managed fund until you have an account balance over $250,000.
How is my SMSF taxed? As already mentioned, the tax rate for both managed and self managed superannuation funds is fifteen percent in most cases. However, it is vitally important that as a SMSF trustee you maintain your fund’s compliance, as a non-compliant fund is taxed at the maximum individual income tax rate, which is currently forty-seven percent thanks to the Temporary Budget Repair Levy.
By Jennifer Lowe