When is the right time to start an SMSF?

When is the right time to start an SMSF?

There's an array of factors that could impact your decision around when to start an SMSF. While there are some legal barriers to opening an SMSF (such as being over the age of 18), other considerations are mostly circumstantial. 

You may wish to consider the following factors in deciding whether an SMSF is right for you, but – although you can seek counsel from certain professionals (like the Rivkin Super team) – remember that the decision to start an SMSF is ultimately up to you. Consider:

  • Your age. The law states that you must be over 18 to be a trustee of an SMSF. Outside of this, age need not be consideration in the process: an SMSF can be equally suitable for a younger executive in his/her 20s or 30s, as it is for a retiree in his/her 60s. It's most likely more appropriate to consider the other factors outlined in this post, and most importantly if your fund balance can cover the percentage of costs to run your own SMSF (depending on what you choose to outsource, if anything).
  • Are you an Australian resident, and not looking to move overseas permanently? The residency of an SMSF relies on the residency status of the trustees, and if the SMSF is deemed to no longer be a resident, then the fund will no longer qualify for the concessional 15% tax rate and be subject to non-compliance. As such, SMSFs are not ideal for those who are not Australian residents or those looking to move overseas permanently.
  • Are you, or any other potential trustees of your fund, under a legal disability (such as mental incapacity) or ‘disqualified’? The ATO states that a disqualified person is one that:
  • Do you have the time? Running an SMSF can take a lot of time. While an SMSF trustee can outsource most of the day-to-day management of the fund, ultimately, the trustee(s) is/are responsible for understanding and accepting all decisions within the fund, which takes a certain amount of time and commitment. 
  • Do you have the knowledge and skill, or at least a commitment to continuous learning? Once you become a trustee, you will be responsible for writing, updating and generally managing an investment strategy, so an understanding of investing can be most advantageous. It's also imperative that you have a strong understanding of the law surrounding SMSFs, and there are large fees for non-compliant funds. While it is possible to lean on external providers for administration and investing advice, you as the trustee have the ultimate say, which requires you to be across the various aspects of running your own SMSF.
  • Are you comfortable with the extra responsibility? As I've mentioned a few times in this post, the trustee(s) of the fund has the ultimate say in everything regarding its running. Trustees must ask themselves if they are comfortable with this additional responsibility and risk, irrespective of how much external support they receive to run their SMSF.
  • Do you have enough money in your superannuation? Contrary to popular belief, there is no minimum balance required to open an SMSF, however, you may wish to consider the costs of running one, which can be higher if you have a smaller account balance. TIP: You may wish to assume some of the yearly costs of running your fund and work out what these costs are as a percentage of what your balance is. You can then work out what your expected yearly investment returns are to see if they increase the overall fund balance, after all costs. There are also unavoidable fees (some ongoing) that you may wish to consider. We outline some of these costs, here.
  • Would you like to potentially save on fees and tax? While there are some small yearly fees for running your own SMSF (to the ATO for example), the majority of the fees in your SMSF can be capped to what you choose to outsource, if anything. Superannuation contributions can also be a great tax planning tool.
  • Would you like to invest in a wider range of asset classes? The biggest advantage of starting your own SMSF is that you can invest in a wider range of asset classes (and in some cases even borrow to invest in), such as property and collectables such as art and wine
  • Are you comfortable using online technology? A significant component of the day-to-day management of your fund will involve the use of the internet, through emails, online banking and trading/investing software, and thus I feel it's important to highlight this for those who are not as comfortable with technology.
  • Would you like more flexible estate planning options? An SMSF offers greater flexibility when planning your estate. 
  • Would you like greater transparency? Transparency is a fantastic component of SMSFs. Since you’re in control, its much easier to see exactly what investments have been made, how much income the fund has generated (and where this income has come from); and how much you’ve paid in fees. To show you the level of transparency you receive with an SMSF, here’s a sample of the summary report Rivkin Super clients receive at the end of every financial year:


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