How much does it cost to set up an SMSF?

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do I need to set up an SMSF
Self Managed Superannuation
December 9, 2019
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Considering setting up an SMSF? This is the optimal amount you should aim for

If you’re considering setting up a self-managed super fund (SMSF), you may be drawn to it due its obvious benefits. You get the control, and the investment freedom, that you don’t see in a retail or industry fund.

But managing an SMSF takes time — and it also takes money. In this article we answer the question ‘How much do I need to set up an SMSF?’.

For investment advice, support, and guidance in managing your SMSF, contact Liston Newton Advisory today. Our award-winning SMSF advisers can walk you the steps to setting your SMSF up correctly, giving you the best chance at a prosperous future.

The minimal viable amount you need to set up an SMSF

When speaking with our clients, the absolute minimum viable amount we recommend to start an SMSF is $250,000.

However, it's not just a matter of getting to this minimum amount, and then an SMSF becomes appropriate for you. There are a number of other factors that need to be considered as part of a choice in setting up a SMSF.

  • Are you interested in running your own super fund?
  • Do you have the skills and ability to do this?
  • Are you getting the right advice to do this?

We wouldn’t recommend an SMSF for anyone with less than $250,000 in their super. This can be a combined balance, say between a husband and wife, or two partners.

In some circumstances, for balances between $250,000 and $500,000 we may still recommend that an SMSF is not suitable.

It comes down to your individual situation, and the amount of work you’re willing to put in to running your fund.

how much money do I need to start my smsf

How much money do I need to start my SMSF?

Ideally, we like to see combined balances in excess of $500,000 before we think an SMSF can really be of benefit to you.

$250k vs $500k—what’s the difference?

The main disadvantage for a lower balance like $250,000 is the fees. You will likely be paying higher comparative fees in an SMSF than what you would pay in an industry or retail fund.

In general, in industry and retail funds you can expect to pay between 0.6% to 1.5% in annual fees on the balance of your super. So for a balance of $250,000, you might pay between $1,500 to $3,750 per year.

According to ATO statistics, SMSFs with less than $200,000 are likely to be paying over 6% of their entire fund balance in fees. So for an SMSF, you would need to budget at minimum $5,000 per year to cover your fees. This includes accounting, investment advice, an annual audit, and the ATO levy.

SMSF fees are proportional, so for SMSFs over $500,000, this percentage drops to 1.5% of their entire fund. Therefore, it begins to make a lot more sense to start an SMSF with a balance closer to $500,000.

The more you have, the less you pay

The good news is that this means your overall comparative costs will go down over time. The Productivity Commission’s Superannuation: Assessing Efficiency and Competitiveness Report confirms this. It notes that SMSFs that have been operational for over five years typically have lower overall costs than newly established SMSFs.

But again, it really depends on your needs, and determination. If you have a balance in excess of $250,000 and you’re set on having an SMSF, then it’s certainly possible to set one up. You just need to ensure you’re getting the right advice.

Contact a Liston Newton SMSF adviser to get the right advice in setting up your SMSF.

The benefits of investing with a larger SMSF balance

The fee comparison on amounts is one benefit of an SMSF.

The other reason you might consider an SMSF when your balance is in excess of $500,000 is the control you have. When a balance approaches this amount, we typically take more interest in our super, as we want to make sure it’s invested the right way.

When your SMSF reaches larger amounts, we encourage our clients to take the time to develop a proper financial plan. This allows you to understand where your super is likely to grow, and determine what sort of lifestyle you can expect when you reach retirement.

Taking a real interest in your SMSF enables you to have more control, and makes your money seem more tangible. However, with this increased involvement comes a cost that retail and industry super funds don’t take into account: your time. Managing your SMSF takes time, especially in its early stages, so for a successful SMSF you have to be prepared to put in the work.

the benefits of investing with a larger smsf balance

There’s more to starting an SMSF than having the right amount of money

It’s important to understand that having a super balance in excess of $250,000 is not an automatic reason to start an SMSF.

Starting an SMSF isn’t just about the money. It’s also a matter of if it suits your personal financial situation.

When looking at starting your SMSF, you need to ask yourself:

  • Do I have an interest in doing this?
  • Do I have the financial literacy to be able to manage my SMSF?
  • Do I have access to the right advice to help me run it?
  • Are there other super options that may be better suited to my situation?

In some cases starting an SMSF may not be the best option. A retail or industry super fund may suit your objectives and situation better.

So if you’re considering starting an SMSF, it pays to have a conversation with your financial adviser.

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