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Self Managed Super Fund Lifecycle

Building knowledge of the particular processes surrounding SMSFs will give you the confidence and insight on how to best manage your own fund. Perhaps the most important   place to start is by illustrating the phases, or lifecycle of an SMSF, which relate to events and scenarios each individual, passes through at some point in their lifetime. In learning and understanding SMSFs we can then pinpoint areas you have a sound knowledge of, along with other areas that demand more attention so you can achieve the best results.

The SMSF Lifecycle

  • Create your SMSF

Anything worth doing obviously needs to start somewhere! Firstly, the person wanting to establish the SMSF must decide on who will assume the role of trustee(s) and devise a trust deed. Applicants must then complete the relevant paperwork through the ATO in order to establish themself as a superannuation entity. Upon completion, the applicant will then be officially recognised as a regulated super fund, after receiving the necessary TFN (tax file number) and ABN from the Australian Tax Office.

There are some underlying factors to consider, with each presenting decisions you will need to make beyond these steps and is explained in more detail on our How to create an SMSF page. 


  • Estate planning
    Although the ultimate goal of an SMSF is to accrue the highest possible amount of capital to self-fund an individual’s retirement, it is also a back-up option should the lifecycle of an SMSF end abruptly due to death. With this in mind, it is paramount that a death benefit nomination or rule be devised from the beginning, should any unexpected event take place. Insurance policies and contingency planning is critical during this phase in the lifecycle. To find out important information on how to set up and administer a SMSF, click here.

  • Contributions towards the SMSF
    This phase relates to the point at which you start investing designated capital into your established SMSF, while in the process of rolling over any super from other funds that you may already own. There are many different laws and policies dictating activities such as who can contribute, how/where they can contribute, along with any tax concessions or implications. The fund must be maintained annually in the form of administration and auditing processes/activities. If you would like to learn more about SMSF administration, click here.

 

  • The accumulation phase. 

The basic notion of the accumulation phase involves facilitating the highest return on investment possible, while staying within the boundaries of your predetermined levels of acceptable risk and exposure to market volatility. This step practices the investment strategy you would have previously created, in order to guide you. During this phase in the lifecycle, funds are withdrawn to successfully fulfill the aforementioned estate plan, ensuring that funds are available to nominees in the event of death. Funds can also be withdrawn should the SMSF holder acquire a permanent disability, to take care of insurance costs, which are tax deductible to the SMSF.

  • Owner extracts funds from SMSF.

 This phase of the lifecycle relates to the point at which the fund owner can begin to withdraw funds from the account, usually occurring after the owner retires and has reached their natural preservation age. Other conditions that might need to be satisfied in order to release the funds pertain to:

- The holder reaches the age of 60 and has stopped working, OR

- Have reached age 65 and have begun receiving a pension from the SMSF.

- Acquired disabilities (permanent and temporary).

- Intentions to start withdrawing funds after reaching preservation age (55) and wanting to withdraw a ‘transition to retirement’ pension. Fund owners can still work in this scenario.

- Investing back into the SMSF during pension phase.

 

The investment strategy adopted in earlier stages will now be replaced by a new strategy to comfortably fund the ongoing pension, while hopefully leaving growth options and mobility to compensate for external events such as inflation. In order to ensure that payments received from your pension remain at a consistent level, the strategic priority and intent now becomes one of safety and low-risk.                  

 

  • Implementing estate plan after SMSF owner’s death.
    This is obviously something we would prefer not to think about, however the events that occur after the SMSF owner’s death can be the most important regarding the intended outcome of the plan. This is where any death benefit instructions are succeeded and achieved on behalf of the owner, as per their instructions. Sometimes the process is much simpler, where the pension reverts to someone else (a spouse) and there are no other actions to fulfill.


  • Closing or continuing the SMSF.

When the designated SMSF owner dies, the account can be pre-nominated to other trustees, should they have the capacity and desire to do so. Therein lies the problem. The estate plan left by the previous owner may, in itself, encourage or discourage other nominated trustees to continue the fund for future generations.



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