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THE COSTS OF RUNNING AN SMSF AND THE MINIMUM BALANCE MYTH

There is significant discussion around the ‘minimum balance’ for a SMSF to be cost effective. It is a fact that there are running costs that go with having an SMSF. These include the cost of investing, accounting and auditing for your SMSF, which may or may not be much higher than what you are currently paying with an industry fund. When you consider the minimum balance, Ivan Filipovic, Director at Redwood Advisory – SMSF Specialists commented that “it is quite simple, when you invest in a fund, you calculate a management fee based on a percentange of invested assets, a similar scenario applies to administration and compliance costs as a percentage of super fund assets”.
For example, if you have a $100,000 superannuation balance with an industry or employer sponsored fund, you are charged a fee which will not be detailed in this example. In considering the minimum balance in the fund, lets consider Redwood Advisory’s fixed all inclusive administration and compliance fee of $1080 annually and compare to the superannuation balance of the fund. Refer to the chart below.

Super Balance Redwood Admin Fee Admin fee as a % of balance
 $         50,000 $                 1,080

2.16

 $         100,000  $                 1,080

1.08

 $         200,000  $                 1,080

0.54

 $         300,000  $                 1,080

0.36

 $         400,000  $                 1,080

0.27

 $         500,000  $                 1,080

0.22

 $         600,000  $                 1,080

0.18

 $         700,000  $                 1,080

0.15

 $         800,000  $                 1,080

0.14

 $         900,000  $                 1,080

0.12

 $         1,000,000  $                 1,080

                 0.11

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As you can see, with a super balance of $100,000, the administration fee represents a 1.08% annual charge. As the superannuation balance increases, lets say to $300,000, the annual charge decreases to 0.36%. The above chart does much to dispel the minimum balance myth, by all means compare this to the annual management fee of your current industry or employee sponsored fund and come to your own conclusion.
If you are thinking about setting up an SMSF or if you have any questions in relation to the above, please contact Redwood Advisory on 1300 790 110 today or visit www.redwoodadvisory.com.au for more information.

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Ivan Filipovic

Ivan Filipovic is an experienced, independent Property, SMSF and Finance Expert and the founder of Redwood Advisory. Ivan has been educating and coaching investors for over 15 years and has built a successful property portfolio with a number of positive geared properties across Australia.  Ivan provides valuable and honest guidance by educating Australians on how to invest successfully protect yourself with knowledge, contact Ivan today for a complimentary consultation on 1300 790 110 or email ivan@redwoodadvisory.com.au

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