SMSF Strategies for Gen Y
Generation Y are a significant part of the Superannuation Guarantee pipeline with most receiving superannuation paid on their behalf by employers for their entire working life to date. By 2023 it is predicted that this generation will hold 27% of the total superannuation pool, increasing to 35% by 2028. With many currently having modest superannuation balances it can be difficult for them to be able to take control of their own superannuation via the use of a Self Managed Superannuation Fund. Below are some strategies that they can utilise in order to gain back control.
Join their parents’ SMSF
A SMSF can have up to four members with the majority, 92% currently having two or less members. There is no reason why a child couldn’t join the superfund of their parents with the following advantages.
- Reduced costs: Additional members would attract little additional administration and management costs effectively the senior members could absorb the administration fees resulting in a nil administration cost fund for the children.
- Funded insurance benefits: Insurance can in many circumstances be funded by the superannuation fund rather than paid for outside of the fund.
Use imputation credits to reduce contributions tax
As a refundable payment imputation credits can be used to offset the 15% contribution tax, an option that is not available in retail and industry funds.
As each member of the fund is required to be a trustee, there is great responsibility in being a member of an SMSF. This is also a great opportunity for younger members to learn about investing and managing a growing portfolio whilst also being mentored by senior members and advisors.
Estate and incapacity planning
Delivering a well considered SMSF estate and incapacity plan is crucial for the success of any family SMSF. The issues of who will take control of the fund are extremely important and the inclusion of younger members emphasises the importance of developing a plan for the future.
A topic of the moment and recently more highly utilised benefit the real bonus is for the next generation. In basic terms it is a payment on the death of a member that results in a large tax deduction to the funds that can be utilised to offset future earnings and in turn reduce ongoing tax.
Some food for thought for Gen Y’ers or parents who would like to encourage their children to be more future focused.