So, you’ve decided you would like to set up a SMSF for greater control and flexibility of your retirement savings, as well as a wide choice of investment options, such as property, international securities and currencies.
Here’s a run-down of the costs associated with setting up a SMSF (as well as some questions you should be asking yourself before setting up a SMSF).
How Much Does It Cost to Set Up a SMSF?
There are a number of reasons why you might want to set up a self managed superannuation fund (SMSF): greater control, more flexibility, pooled savings and reduced costs.
SMSFs can be expensive – not only to set up, but also to run. However, the one advantage SMSFs do have over other super funds is that the costs associated tend to be fixed costs, rather than percentage based fees. Therefore, on higher account balances, SMSF fees can actually be cheaper than Industry or Retail super funds.
The set up costs for an SMSF include a range of fees and will vary depending on how you set up your Fund.
It can be as cheap as $500 all the way up to around $3,000. Let’s take a look at each approximate cost that may be incurred and whether or not it is essential:
SMSF Establishment – $500 – $600
A SMSF is a Trust. Therefore this covers the cost of the Trust Deed, which is essentially the creation of the SMSF.
The SMSF establishment costs should also include the Fund’s product disclosure statement (PDS), minutes, sample investment strategy and all other documentation, as well as an application to the ATO for ABN & TFN registration, if required.
Corporate Trustee – $800 – $1,000
You may choose to have a corporate trustee for your SMSF. A corporate trustee can provide greater asset protection of your retirement savings, simplified administration and provide your SMSF with a longer lifespan.
The alternative is to simply be individual trustees of your SMSF. However, a single person is not able to be the sole trustee. A single member SMSF must have either a corporate trustee or two individual trustees, where the other (non-member) trustee is either related to the member or not an employer of the member.
Limited Recourse Borrowing Arrangement – $800 – $1,000
Essential: Only when borrowing to invest within the SMSF
If you plan on borrowing within your SMSF to purchase a property or other asset, you will need property borrowing arrangement documentation in place, as the property or asset is held within a separate Bare Trust while it has an associated loan.
Financial Advice – $2,000 – $5,000
Obtaining personal financial advice is a prudent step prior to setting up a SMSF. Advice from a professional financial planner can help you determine the appropriateness of a SMSF for you personally, assist with the process in setting one up to ensure nothing is missed and outline the costs, as well as any alternative options available to you.
How Long Does It Take To Set Up A SMSF?
Setting up a SMSF will usually take around 3-5 weeks due to documentation required to be completed and the review process undertaken by the ATO, who is the regulator of SMSFs.
It can then take another 3-4 weeks for any existing superannuation balances to be transferred over to the SMSF from another superannuation fund.
Before closing down any existing superannuation accounts or transferring balances to the SMSF, it is imperative you understand the risks of doing so. Failing to understand the risks of rolling over your super can be detrimental to your financial situation.
How Much Does It Cost to Run a SMSF?
The setup costs are one thing, but then there’s the ongoing costs too.
Contrary to its name, a self managed superannuation fund is anything but self-managed.
At the very least, a SMSF requires an administrator and an auditor to assist with end of year financials, tax returns, minutes, compliance and documentation throughout the year. In addition, you may decide to also engage the services of a strategic adviser and investment adviser.
There’s also regulatory and registration costs too.
The running costs for a SMSF will generally be between $1,500 and $10,000 depending on the assets within the Fund and any advice received by the trustees.
Ongoing Accounting/Admin Fees ($1,000 – $4,000 p.a.)
An SMSF administrator is responsible for completing the Fund’s tax returns and financial statements at the end of each financial year.
They will usually also prepare any minutes relating to changes in the Fund’s circumstances and/or meetings conducted by SMSF members, trustees and directors (i.e. you).
The cost will depend on the administrators specific fees and is usually determined by the complexity of the Fund’s assets. For instance, a SMSF with a bank account as its only asset should have low administration fees; whereas, an SMSF with a property and LRBA will have higher fees. A SMSF with a share portfolio will generally be somewhere in between.
Ongoing Audit Fees ($300 – $500 p.a.)
Each year, your SMSF must be audited by an independent auditor to ensure it meets its legislative and regulatory requirements.
ATO SMSF Supervisory Levy ($259 p.a.)
This is a mandatory payment made to the ATO to cover the regulatory oversight of SMSFs, due to the ATO being the regulator of SMSFs.
Ongoing Advice Fees ($2,000 – $10,000 p.a.)
If your SMSF receives advice from a financial planner, you might be paying ongoing advice fees for strategic and SMSF investment recommendations received by you, in your capacity as trustee of the Fund.
The cost of ongoing financial advice will be based on the scope of the advice being received, the complexity and number of Fund members and possibly the value of the investments within the scope of advice.
There may be fees associated with the investments owned by the SMSF. For instance, an investment property may incur real estate agent management fees; a share trading account might have brokerage costs, a managed fund will have management fees and bank accounts could have account keeping fees. Such fees will be in addition to the other ongoing fees noted above.
How Much Money Do You Need to Set Up a SMSF?
There are varying opinions on how much you need to set up a SMSF. Some say $200,000, some say $300,000 and others say up to $500,000.
I think the more important question is why do you want to set up a SMSF?
Some questions you may ask yourself include:
- Can the setup costs associated with a SMSF be recouped within a reasonable timeframe?
- Are the expected earnings from investments owned by the SMSF likely to comfortably outweigh the ongoing costs? (based on your own research and experience – not what the real estate agent /currency trader “guru” promises)
- Are there lower-cost alternatives available that will allow you to achieve your objectives (e.g. industry super funds or retail super funds)
- Do you truly understand all of the responsibilities and administrative requirements associated with running a SMSF?
- Have you received personal (professional) advice about whether or not a SMSF is suitable for you?
Can I Set Up My Own SMSF?
You are permitted to establish a SMSF yourself. However, it is very important to comply with all of the necessary requirements, including registering the Fund with the ATO within 60 days of it being established. Failure to have a compliant SMSF may result in an administrative penalty, disqualification and taxation at the highest marginal tax rate.
Most SMSF trustees and members will engage the services of at least one professional to assist with the establishment and ongoing management of the SMSF. This can significantly increase the chances of the Fund remaining compliant.
How Much Does It Cost to Close a SMSF
SMSFs are closed down for a variety of reasons, such as death of a member, reduction in cost-benefit, or members simply wanting to simplify their financial situation.
Depending on the circumstances of the SMSF, the fee charged by an accountant or SMSF administrator for winding up a SMSF will usually be between $300 and $600. A final tax return will also need to be completed which will also incur a fee, as determined by the administrator of your SMSF – usually between $500 – $2,000 depending on complexity.
There is additional time, costs and resources involved in setting up an SMSF compared to simply holding your retirement savings in a standard Industry or Retail superannuation fund. However, there are many benefits of SMSFs that are unavailable through Industry or Retail super funds.
Once you’ve determined the costs associated with SMSFs, then researched what is involved in setting up and running a SMSF, your next step should be to obtain professional advice to determine whether a SMSF is suitable for you. Although professional advice comes at a cost, it will most certainly alleviate the stresses involved and ensure your SMSF is set up in a compliant manner and for the right reasons. This can save a lot of heartache down the track at a relatively small fee.
Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
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