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Know your fund’s lifecycle to make the most of it

New research by the Self-Managed Super Fund Association (SMSFA) into the lifecycle of a SMSF has discovered a number of important points in the life of a fund of which trustees should be mindful.

 

Know your fund’s lifecycle to make the most of it

Understanding the lifecycle of an SMSF explores important stages in an SMSF’s life when trustees must ensure they are meeting their obligations and making the most of the structure. Starting the fund, paying an income stream and winding up the fund are three of these periods.

Peter Hogan, the SMSFA’s head of technical, says things like bank accounts, Australian Business Numbers (ABNs) and Tax File Number (TFNs) are three important aspects of the fund to get right from the outset. Hogan says it can be tricky to know which ABN and TFN to use to set up the account.

“To open a bank account you must be able to provide these to the financial institution. You apply for these at the same time as electing to be regulated. Your SMSF will have its own ABN and TFN, so don’t use your personal TFN or the ABN or TFN of your corporate trustee,” says Hogan.

“You will also need to ensure you have a written investment strategy, adopted by the SMSF trustees in place before investing any of your fund assets,” he adds.

 

At this stage the fund should be ready to accept rollovers from other funds, employer superannuation guarantee contributions from employers or salary sacrifice contributions.

"It is worth noting that any costs of set up paid by you personally will be treated as a contribution to your SMSF and should be recorded as such.”

Accumulating wealth for retirement

During the accumulation phase investments will be made, changed, adjusted, sold and sometimes repurchased. Hogan says there are a number of variables to consider when making your investment choices and entering into transactions.

“Firstly, great care should be taken when acquiring assets from related parties of the fund. These include members of the SMSF, people associated with any business they run or family trusts they control. Restrictions apply to these transactions and so you should always get advice before entering into these types of transactions."

Paying an income stream or pension

There are a number of factors for SMSF trustees to think about once a pension is started in your SMSF for one or more members.

Firstly, says Hogan, the superannuation law requires that as trustee, you invest fund assets to ensure the SMSF is able to meet all obligations as they fall due.

“When a pension is started, ensuing the fund has sufficient cash to make pension payments is part of this obligation. So, carrying a little more cash is recommended and should be reflected in the investment strategy of the SMSF,” he advises.

Also remember it is compulsory for a minimum pension amount to be paid each year to ensure tax concessions that flow to your SMSF because a pension is being paid are received.

Winding up the fund

At some point many SMSFs need to be closed. This may be because you have drawn down most of the assets as an income stream, or perhaps your circumstances have changed. Other common reasons why SMSFs are wound up include ill health and also if it becomes too difficult to run the fund.

Hogan says it’s essential to take a step-by-step approach when you close your fund to ensure this process is as smooth as possible.

“There is a lot to think about when you run an SMSF. Investing the assets of your SMSF is part of the enjoyment of having your fund and part of the satisfaction of the engagement in saving for your retirement. Attention to a few important details will make the process run smoothly for your SMSF,” he advises.

Each fund’s key milestones will differ depending on whether the fund is in pension or accumulation phase, the members’ time to retirement and risk appetite, as well as other factors. It is an idea to plan ahead to ensure you are ready to respond at each important stage of your fund’s life.

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