A self-managed super fund, or SMSF, is an attractive investment option that many people use. An SMSF allows trustees to control investments. It also provides a better perspective on how to manage retirement savings to get the biggest return. Before you get started, make sure you are aware of these common SMSF mistakes.
SMSF Mistake 1: Not Properly Planning Setup Costs
The cost of setting up an SMSF can grow very quickly. This is something that must be planned for if your investment is going to be successful. Write down a list of known costs which should include setup, accounting, auditing, advice, and trustee company structure expenses.
SMSF Mistake 2: Not Planning for a Time Commitment
It’s easy to overlook the time factor when starting a self-managed super fund. Your plan for time should include education and research as well as investment management and handling of tax returns. These areas need attention if you are going to be successful in the long run.
SMSF Mistake 3: Not Understanding Legal Responsibilities
An SMSF comes with additional legal responsibilities that you otherwise would not have. As a trustee, you must operate according to the rules of the SIS Act as well as your Trust Deed. These rules may change, which means you must stay on top of updates, so you remain compliant.
SMSF Mistake 4: Viewing the SMSF As a Way to Avoid Paying Taxes
There are tax advantages to setting up an SMSF. However, that doesn’t mean it’s a free ride. You should never go into the endeavour for the sole purpose of not paying any taxes. You will still have to pay all applicable fees and remain legal to avoid possible repercussions.
SMSF Mistake 5: Not Writing Out an Investment Strategy
It can take years to build capital, and you need a plan to make it work. You would not construct a building without a blueprint. The same goes for your SMSF. Make sure you plan out every step in the process as well as future goals and tasks. This should be done in writing so it can be used as a reference when making decisions.
SMSF Mistake 6: Investing for Personal Benefit Rather than Financial Growth
Always remember that you are growing your financial assets, not investing for personal benefit. For example, someone who loves art may choose to buy art. If their sole focus remains on growing their personal art collection rather than managing the SMSF, this can lead to complications and loss of profit.