What can you do with your SMSF money ?
Following on from the previous post in our Self Managed Superannuation Fund (SMSF) series, where we discussed how to get money into your SMSF ? we now look at what you can and can’t do with the money once it’s inside your SMSF.
In summary, your SMSF can do anything your Trust Deed allows and or anything within the Superannuation Law. So what does that look like in practice?
What you can do inside a SMSF ?
You can use your SMSF money to invest in shares (Australian or international), property (commercial or residential, but not your house), managed funds, term deposits & cash, or a combination of the above.
The earnings on these investments stay within your SMSF and go back into accumulating more wealth. For example, the rent from your property is deposited into your SMSF bank account along with the interest on your term deposit and dividends from your shares. If deciding where to invest your money isn’t your forte, don’t worry we can arrange for you to meet with Brendan Burvill from Burvill Financial to discuss your investment objectives and provide you with the appropriate advice.
You can also pay the members Insurances from your SMSF such as Income Protection, Life Insurance and Trauma Insurance.
You can also borrow money against your investment assets (ie a property) to help fund the purchase. There are a lot of strict rules on borrowing so you need to consult with us before you think about doing this.
Fund your Retirement
Pay your Pension
Paying yourself a pension is a great way to fund your retirement. You can setup your pension so it’s just like getting your normal weekly or fortnightly wage you have been used to for the last 40-50 years.
Pay a lump sum
If you are ready to take that holiday of a lifetime or buy a new car you can also withdraw a lump sum from your SMSF. With your own SMSF you have the flexibility to decide when you want to take these lump sums.
Direct what happens with your Super when you die
It’s a topic most people hate to talk about, however it’s something very important for your family. What happens to my money when I die? With a SMSF you can easily control where you want your money to go when you die. You can make this nomination binding on the trustee which means your wishes must be followed.
Have tax-free earnings
Yes you did read that correctly! Super as we have discussed is the best taxed environment we have in Australia. And when you are retired and in pension mode this tax is even better because you don’t pay any! That’s no tax on any pensions you withdraw and also no tax on any income from your investments.
What can’t you do inside a SMSF?
Buy a house and live in it
Your SMSF is solely for the purpose to provide for you in retirement. The rules are you can’t get a benefit from your super until you are retired. So that means you can’t buy yourself a house to live in. That includes a holiday house as well.
Take money out before you reach retirement age
You can’t withdraw money from your SMSF until you reach your preservation age. Note this age differs for everyone depending on the year you were born. Please contact us to discuss your preservation age.
Loan money to your business
Unfortunately you can’t loan your business money. This is classed as an in-house asset and puts your fund at risk of being non-compliant. The consequences of being non-compliant are severe to the extent ALL of your SMSF assets may be taxed at the highest marginal rate ie. 47%.
Invest without a strategy
Every SMSF has to have a strategy. How are you going to build wealth inside your SMSF to fund your retirement? In this investment strategy you need to consider your risk profile and ensure you have a mix of assets.
Contribute more than you are allowed
There are strict rules about how much money you can contribute to super. These rules change regularly so it’s important you don’t contribute too much. Please contact us to discuss your contribution limits.
Not do your trustee duties
There are significant penalties for non-compliance with the rules relating to SMSF’s. It is important you lodge all the necessary forms each year to remain compliant as well as keep all the necessary documentation. Fortunately your Yield accountant is here to ensure you understand all the rules and to help you meet all your compliance requirements, we specialise in the management of SMSF’s.
A SMSF is a fantastic tool allowing you to really take control of your superannuation assets. You have a lot of flexibility in the investments you choose, how you accumulate your wealth and how you fund your retirement, however as you can see there are a lot of rules and regulations that need to be adhered to, so its critical that you take the time to seek advice before developing a rock solid plan for your retirement.
Excited about the possibilities of building your empire with your super and want to know the next steps ? Contact us at our Manjimup Office (97771909) or our Pemberton Office (97761909) to arrange a meeting with one of our SMSF specialists to discuss whether a SMSF is suitable for you.