SUPER fund members are constantly told to consolidate their accounts to save on fees, but sometimes it can be a good idea to double up.
Using more than one fund potentially delivers tax, estate planning and insurance benefits to some, and technical specialist Meg Heffron told this month’s SMSF Association national conference that “there’s no rule that says we have to have one fund”.
Several super strategies focus on the two types of contributions we make — concessional contributions such as salary sacrifice that deliver deductions and are taxable, and non-concessional contributions made from after-tax money.
Pre-retirees can sidestep a death benefits tax of at least 15 per cent being slapped on super left to their adult children by separating these types of contributions, as only the taxable component gets taxed.
“Currently the main driver is estate planning, but there is definitely a future-proofing element in there now,” Heffron says.
That’s because both sides of governments can’t keep their hands of super, and people who separate their funds may be more nimble when the rules change again.
If health issues prevent you from getting enough life insurance to protect your family, you can join several super funds where basic insurance is automatically provided to new members. The power of this was highlighted recently when a 30-year-old man died and unknowingly surprised his family with a $1 million life insurance payout because he had not consolidated four super funds that had life insurance.
“When people set up SMSFs it’s quite common to leave a balance in whatever fund they were in before to preserve the insurance,” Heffron says.
“With any of these strategies, reading about it is great but when it comes to putting it into practice there’s no substitute to getting advice.”
While being creative with super works for some, Baillieu Holst financial adviser Helen Dundon says it’s generally wise to keep super as simple as possible.
“Before tinkering with your super in any way, you need to carefully weigh up the pros and cons,” she says.
“The additional fees and administration responsibilities in having a second fund can be significant.
“There may be advantages in having two super funds in certain circumstances. In my experience this strategy usually works best for holders of self-managed super funds, usually people aged in their mid-50s and beyond, looking to separate concessional and non-concessional contributions to generate longer term tax savings.”
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