Being able to take complete control over your savings and manage them seems like a daunting thing to do for some Australians, yet others take full advantage of it and reap the benefits in their retirement years. The SMSF is a rapidly growing sector in Australia and more and more Australians choose to set up a self managed super fund. One way to ensure your fund is doing well, is to invest some of your own money in it. This process is also known as personal super contributions, and it doesn’t involve the money that’s cut from your salary.
Simply put, personal super contributions are after-tax contributions towards your retirement, and are considered the surest and easiest way of generating more funds, without having to pay taxes once your fund gets them. However, be wary not to exceed the super cap amount for the year because then you’d be bound to pay taxes.
By investing in your future through an SMSF, you get a peace of mind knowing that after you retire, you’ll be set for the remainder of your years. However, it’s important to abide by the Australian Taxation Office rules if you want to successfully manage your SMSF without making breaches. Breaches are usually followed by financial penalties which is contrary to what you’re trying to do – save money.
As you may or may not already know, every SMSF has to pass the sole purpose test. For those who don’t know what the sole purpose test is – it basically means that you are to use the fund strictly for retirement savings. In other words, you and other trustees cannot use these funds for your own benefits, regardless of whether the fund is based on corporate or individual trustees.
This investment option is especially attractive for self-employed people under the age of 65, who earn less than 10% of employee taxable income, and for people who aren’t working but are still eligible for making personal (non-concessional) contributions.
If you’ve made it this far in the article, but still don’t have a clear idea on how personal super contributions and SMSFs work, then it’s best you talk to an SMSF broker or adviser. These people have the required knowledge and experience on the matter to guide you through the entire process as there are far too many rules and regulations to remember, which if you do not follow, you might end up having to pay fines.
