Benefits of a self managed super fund (SMSF)
SMSFs offer great investment and tax benefits, but there are some risks to be aware of.
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
Are you considering starting your own self managed super fund (SMSF)? Managing your super yourself might seem like a good idea on the surface, but SMSFs aren't right for everyone.
We'll take you through the major benefits of SMSFs as well as what risks to consider, so you can decide if an SMSF is right for you.
Earn interest on your SMSF cash balance with a SMSF savings account
Why open an SMSF?
A standard super fund, such as a retail or industry fund, will have investment managers that decide where and how your super is invested on your behalf with little or no input from you. This is why SMSFs are a popular choice for thousands of Australians; an SMSF gives you complete control over how your super is invested.
An SMSF might be the right choice for you, if
- You have a large super balance. There are many costs involved with setting up and managing an SMSF, and you generally need a balance over $200,000 for SMSFs to be cost-effective compared to a standard super fund. This isn't a set rule, but it's a good guideline to consider. You can read more about the costs involved with setting up an SMSF here.
- You understand how investments work. You'll be responsible for setting your SMSF investment strategy, so you'll need to understand how the share market works, how to buy and manage an investment property and how to invest in international markets. If you've never invested in anything before, an SMSF is probably not for you.
- You have enough time to manage the fund. Managing an SMSF can be quite time-intensive, so you'll need to make sure your lifestyle allows you enough free time to properly manage the fund. If you don't have enough time to dedicate to the SMSF, your investments might suffer as a result, and you might miss some of your reporting deadlines with the ATO.
- You have some legal expertise. Being the trustee of an SMSF comes with a number of legal obligations, for example setting up the trust deed (this is a legal document that outlines the rules of the SMSF). While it's not necessary to have extensive legal experience, some understanding of how to manage legal documents will be helpful when setting up an SMSF.
If you've answered no to several of the above points, a super fund that is managed for you might be a better fit rather than an SMSF. You can compare super funds in our guide here. If you've answered yes to most of the above points, an SMSF could be a good choice for you. Read on to learn more about the pros and cons of an SMSF.
What are the benefits of an SMSF?
One of the main benefits of an SMSF is having complete control over your super, but there are other benefits too.
SMSFs come with tax benefits.
Like retail and industry super funds, SMSF income is taxed at the lower tax rate of 15%. Considering your marginal tax rate for any income you earn through work could be as high as 45%, this is significantly lower.
You can buy direct residential property.
You can buy an investment property through your SMSF and earn income from the rental payments while also enjoying the capital gain of the property value. You have complete control over the property you choose to buy and who you rent it to (however, you can't rent it to direct family members as this is a conflict). With a standard super fund, this isn't possible.
You can invest in rare, less-popular asset classes.
Not only do you have complete control over your investments, but you can also choose to invest in things that you generally can't invest in with a regular super fund. For example, you can invest in art, antiques or collectables like stamps and coins. You can also buy physical gold, which isn't possible with a regular super fund.
You can act on investment decisions quickly.
Another advantage of managing your own investments is the freedom to act quickly to jump on investment opportunities. You can instantly adjust your asset allocation if market conditions change, while big super funds will be much slower to act.
Your SMSF can include family members.
One benefit of starting an SMSF is that you can have up to four members join the fund. These can be family members, which means you can manage your collective super balance together as a family.
What are some SMSF risks to be aware of?
SMSFs also come with a number of risks. It's a good idea to make sure you understand what these are and how to avoid them before setting up your SMSF.
Heavy fines apply if your SMSF doesn't comply with the law.
SMSFs must follow the super laws as set by the ATO, and if your fund breaches one of these laws, you could be hit with a hefty fine. For example, if you rented out your SMSF's investment property to a family member for cheaper rent and were caught out, you'd be fined. Read more about your responsibilities as the trustee of your own SMSF here.
Investing on your own can be risky.
All investments come with some level of risk. However, the more investment experience you have, the better you'll be at managing this risk. You need to be confident in your ability to create and manage your SMSF investment strategy. If you're not, you might be better off sticking with a regular super fund that manages these investments on your behalf.
SMSF regulation is constantly changing.
You might understand all the regulations and policies concerning SMSFs now, but these laws are constantly being tweaked. Something that was okay the previous year might not be okay the next; you need to stay up-to-date with the regulation each year to avoid being fined. Because these regulations are constantly evolving, it can be easy to get caught out.
An SMSF could end up costing you more.
An SMSF could end up being a lot more expensive to manage compared to the fees you'd pay in a standard super fund. There are set-up fees, annual reporting and auditing fees as well as ongoing admin and investment management fees to think about. Plus, if you decide to pay for professional investment advice and planning, you'll be paying even more. Read more about SMSF costs in our guide here.
Pros and cons of SMSFs
- Complete control over how your super is invested
- Can invest in direct residential property
- Can invest in assets like art, stamps and physical gold
- Can share the fund with family members
- Generally need a balance of $200,000 or more for an SMSF to be cost effective
- SMSFs are expensive to set up and manage
- Managing an SMSF can be very time consuming
If you've read this guide and believe an SMSF is right for you, take a look at our simple six-step guide on setting up an SMSF.
Keep track of your holdings with Sharesight's portfolio tracker
Sharesight Portfolio Tracker
Sharesight works alongside your online share trading platform and makes it easy to track your performance and stay organised.
- Track shares, ETFs, property, currency, and more
- Comprehensive dividend and tax reporting
- Free for investors with less than 10 holdings
More guides on Finder
Superannuation statistics 2021
There are 24.4 million super accounts in Australia from a total of 84 funds, with MySuper assets equalling $812 billion. Find out more in our report.
Verve Super: Performance, features and fees
Verve Super is an ethical super fund designed by women for women and open to all Australians to join.
Capital gains tax calculator
Estimate your CGT when selling an investment property or other asset with Finder's simple capital gains tax calculator.
Are you better off putting $10k in your home loan or in super?
Our experts crunch the numbers to help you work out the best place to park your money: is it your mortgage or your super fund?
Sunsuper vs HESTA: Which super fund is right for you?
We've compared the fees, investment options and performance for both Sunsuper and HESTA to help you choose between these two popular super funds.
Hostplus vs HESTA: Which super fund is right for you?
Hostplus and HESTA are two popular industry super funds, but which is right for you? We've compared their fees, investment options and performance side by side to help you choose.
QSuper vs Sunsuper: Which super fund is right for you?
We've compared the fees, investment options and performance for both QSuper and Sunsuper to help you choose between these two popular super funds.
How to buy shares for children
Here is the essential info you need to know about investing in the stock market for your children.
AustralianSuper vs Australian Ethical Super
Trying to decide between AustralianSuper and Australian Ethical Super? We've compared their fees, performance and investments to help you choose.
AustralianSuper vs LUCRF Super
We compare the fees, investments and performance of AustralianSuper and LUCRF Super so you can see which super fund might be right for you.
Ask an Expert