In basic terms, superannuation is a way an employee can save money for their retirement. It is essentially a company saving plan. It is a pension plan within a company. Each month you will make contributions into your superannuation fund, or ‘Super’ fund. As time passes and the contributions continue, you start to get a substantial amount of money saved up.
There are several benefits of having a Superfund, most notably that they are free from many tax obligations as long as the money isn’t used. Upon withdrawal or retirement, some tax implications may be incurred.
Another benefit is that you can use this money as a down payment on a loan. This type of loan is called a self-managed super fund loan. SMSF loans allow you to use your hard-earned savings to secure a loan for an investment property.
Superannuation – How Does It Work?
Usually, the money paid into your Super fund over time gets saved to pay out pension benefits offered by the company. Every month, a share of your wages goes into the fund. The money can only be withdrawn on special occasions, such as retirement or in other extreme cases, illness. If you are diagnosed as unable to work due to illness or injury, often you will be able to use your Super money earlier than the age of retirement.
Your Superfund is your hard-earned money. It is the fruit of the toil and labor you have put into your career. It is valuable. It is precious. It is yours. It would be best if you looked after it with considerable care. It would be a shame for this money to go unused throughout your career, even if it is being saved tax-free.
If you are planning to set up a Super account, it is crucial that you speak to an accountant and have them consider the following factors:
- The account is attractive and has low fees or a flat percentage rate.
- To be cautious when researching companies. Companies that offer to withdraw your Super early should be avoided.
- Ensure your insurance is in order and your contracts are tight.
If you are considering using your Super to secure a loan for an investment property, there is a lot to consider. Are you interested in a commercial property? Maybe you want to buy a property and rent it out. Whatever you choose to do with the money from your SMSF loan, remember to research thoroughly and get sound advice.