Everyone looks forward to retirement – days spent on the beach, at the golf course or wherever you’d like doing whatever you’d like. But it takes money to get the most out of those golden years – money that is saved, invested and grown during your working years. In the past we used superannuation funds as the primary investment tool for retirement savings, but self-managed superannuation funds are now a popular option.
With self-management comes great control over investments – but self-management also increases complexity and the chances for mistakes. We explore SMSF management, possible pitfalls and how to avoid them.
Taggart & Partners are business accountants serving many great small and medium sized firms in the Brisbane area. Contact us today to learn more about our services by calling 07 3391 1188 or by filling out the online form.
SMSFs & Their Growing Popularity
A self-managed superannuation fund is a type of superannuation fund that allows for greater control and management by individuals for their retirement savings. Traditional superannuation funds were established by the Australian government as a way to reduce reliance on the Age Pension. Those superannuation funds have been managed by large institutions – this is in contrast to the newer and very popular SMSFs which allows members to select investments and allocate assets.
Common SMSF Management Mistakes
It may seem like SMSFs are an excellent investment tool for saving for your retirement, especially if you are knowledgeable about investing, but they are not free of challenges. There are compliance and regulatory requirements that must be strictly followed – and this is on top of the already considerable time commitment required to make educated and sounds investment decisions. Mistakes with your own SMSF management services can be costly and potentially lead to significant losses. Here are some common mistakes to be aware of.
Contributing Too Much
There are limits to how much you can contribute to your SMSF each year. These annual contribution caps are set by the Australian Taxation Office, and exceeding the limits can result in penalties. To avoid this, members need to know how much they are able to contribute. This amount frequently changes, and it is best to consult the ATO website for the most up to date information regarding SMSF contribution caps.
Not Keeping Good Records
The rules regarding record keeping for SMSFs are very specific. All records must be in English and the ATO must be able to verify any electronic records. Records must be kept for a minimum of 5 years or a minimum of 10 years, depending on the record type. The penalties for not correctly keeping accurate records can be severe, so it is worthwhile to consult with an expert in SMSF management services to make sure your record keeping complies with all regulations.
Not Being Diversified
This nothing new in terms of investment advice – proper diversification has been the mantra of investment gurus for as long as there have been investment gurus. Diversification is way of mitigating risk by not having all your eggs in one basket. You might receive a hot tip about a great new startup, so you invest most of your money in the startup’s stock. If and when that stock price drops, so does the value of your portfolio. Diversification prevents this from happening, and having diversified investments in your SMSF is extra important because it is money you are meant to retire on – big losses here can be much harder to recover from as you approach the age of retirement.
Not Sticking to Your Investment Strategy (or Not Having One)
This is another common mistake made by many investors, not just SMSF investors. Each year, there are many new financial products created, markets shift, and economic trends change – all of this can be confusing for the most experienced investors and can be overwhelming for an individual trying to manage a SMSF. This is where having a clearly defined investment strategy – and sticking to that strategy – becomes important. It should include risk tolerances, and it should indicate the kind of investments you will make and the time horizon of such investments. The strategy acts as a guide through the complexities of investing, keeping you on track to reach your financial goals.
Assets Under the Wrong Name
The common mistake here is to set up bank accounts and purchase assets under the name of the individual or a business. This is the incorrect thing to do. All SMSF assets should be under the name of the fund. This helps to ensure that all SMSF money and other assets are kept separate from personal accounts.
Contact Taggart & Partners Today
When independently managing your SMSF, the assistance from experts in SMSF management services can help you to overcome any challenges and avoid costly mistakes. Taggart & Partners are the SMSF accountants Brisbane turns to for this kind of assistance and we are ready to partner with you to help you secure a comfortable retirement. Contact us today to get started by calling 07 3391 1188 or filling out the online form.