Am I too young for an SMSF?

If you’re under 55 and thinking about setting up a self-managed super fund (SMSF) you’re not alone. SMSFs are being established by younger Australians wanting greater control over their super. In March 2014, younger people represented 75% of new SMSF membersⁱ.

Before deciding if an SMSF is right for you, consider some of these important questions.

How much do I need?

Consider how much you’ll have if your super is combined with other potential fund members. And keep in mind that if your combined balance is less than $200,000 the ATO suggests an SMSF may not be the most cost-effective option – when compared to fees in other funds, SMSFs may cost more.

What age do I need to be?

You must be 18 years or over to be a trustee of an SMSF. People under 18 can be SMSF members, but conditions apply – for example a parent of a younger member may need to act as their trustee. Generally, all members must be trustees of the fund. They have legal obligations and are responsible for the management and decisions of the fund.

If you’re under 55 you or your spouse may be actively contributing to super and ideally have considerable super assets already. If you’ve also gathered investment knowledge and experience along the way, it’ll come in handy if you decide to manage your own fund.

What are the risks?

Generally the risks come with the increased responsibilities you’d have as an SMSF trustee

Running an SMSF means you – along with the other trustees – will be responsible for all decisions regarding investments and activities of the fund.

If you’re pretty savvy with investing you may like the idea of selecting and managing investments from asset classes across the world. But the risk is your fund’s investment performance will ultimately rest with you and your fellow-trustees.

One of the most important duties of an SMSF trustee is to keep abreast of superannuation laws and understand how they’d be applied to you and your fund. Penalties for breaches were introduced on 1 July 2014 and can be applied to trustees (corporate or individual) but can’t be paid with SMSF monies. That means you could be personally liable for a penalty if your fund is found to be in breach.

What are the opportunities?

You can pool your superannuation with up to four family members (including yourself). While this provides the opportunity for costs savings – the bigger the fund balance the greater the potential for savings – but you also have full transparency of all the costs and returns for your super. That can help you manage your tax effectively too; another benefit of an SMSF.

An SMSF gives you investment flexibility too. So not only can the fund invest in direct property – residential and commercial – but it can borrow to invest. If you are a business owner your SMSF has the potential to buy premises you can lease back. Special rules apply so make sure you seek advice.

When it comes to accessing your money down the track – and how you’ll hand down your assets when you die – you have several options. It’s another area where you’ll benefit from gaining specific advice.

What next?

Before setting up an SMSF look into all your options. There are ways to manage the administration without using up all your spare time and your adviser can discuss this with you. You’ll need to carefully consider your strengths and weaknesses and those of each trustee too, as well as the stage in life of each to make sure it’s going to benefit all parties.

i. Those aged under 55 years establishing an SMSF, ATO Statistical Report March 2014.