SMSF Beginner mistakes to avoid
To set up a self-managed super fund requires a number of important decisions you must be prepared to make to give your superannuation experience not only the right start but the best prospects for success.
All SMSF trusts have a trust deed – a set of rules that dictate how the super fund must be set up and then administered, how a trustee or trustees can be appointed and how members can join the fund. There are also rules that require a fund to register with the Australian Taxation Office (the government body responsible for regulating self-managed super).
An SMSF must have an Australian Business Number and its own tax file number, which should make it clear that it’s a separate entity for regulatory and tax purposes
Within these rules, there are requirements for trustees to sign a declaration with a wide-ranging set of responsibilities for virtually every aspect of self-managed super.
They range from knowing superannuation laws and regulations to being familiar with the nuts and bolts of super administration as well as a number of investment management responsibilities.
What the trustee declaration and the trust deed governing rules highlight is the disciplines those with self-managed super should be aware of.
For many people in large funds, superannuation is something they don’t take seriously until they are about to retire. But becoming involved in self-managed super can be a lifetime exercise in financial awareness from the moment you embark on it.
This awareness includes knowing where different decisions you make can lead to, and that it is possible to make better decisions that will improve your outcomes.
Things you can do that should make your self-managed super experience a better one include:
Before signing any self-managed super documents, read them and understand what they mean. This will give you a huge advantage over those who don’t. It can allow you to discover that it can be better, for instance, to set up a fund with a corporate trustee rather than having individual member trustees. It’s a superior way of dealing with any changes to fund membership.
Being disciplined when it comes to making regular savings that go beyond any compulsory super you may receive from your employment, which can be more easily monitored in self-managed super. Compulsory super is the current 10 per cent of your gross salary that an employer must pay into your super fund
Being disciplined when it comes to delegating any powers to someone such as an adviser with regard to your super, especially any powers that give them any discretion over bank accounts.
Knowing the tax rules that apply to superannuation, as self-managed super allows you to be more hands-on with investments and managing tax. The main taxation benefits superannuation enjoys is 15 per cent tax on contributions and investment income. For most members of self-managed super funds, tax on income earned outside super probably attracts tax of between 39 and 47 per cent including Medicare.
Being disciplined about the skills needed to manage your super as an investor, including how to deal with financial market uncertainties. You can become skilled in the art of diversification by spreading your money between a variety of investments and hoping the research your decisions are based upon will see the majority perform well. How much you commit to each investment can be determined by your confidence in their expected performance, coupled with caution that you’re not being overconfident.
As a new investor, one way of dealing with the challenges you can encounter is taking small steps that allow you to learn without suffering a major financial penalty