The journey to financial independence and early retirement (FIRE) is portrayed as a straightforward process; be frugal with expenses and to invest simply and often. Skip the frequent indulgences and Dollar Cost Average (DCA) into market index funds!
But, there are tools and tricks that the rich use to protect and strategically use and protect wealth. These are not at the fingertips of the average Joe.
This Q&A post will address several ‘next level’ FIRE aspects, including
- Setting up a self-managed superannuation fund (SMSF)
- Establishing a discretionary (family) trust,
- Investing in physical precious metals
- Running a Bitcoin or Monero node and holding cryptocurrencies in cold wallets
- Working as a freelancer through a business while avoiding personal services income (PSI) issues.
Setting Up a Self-Managed Superannuation Fund (SMSF)
Q: What is a Self-Managed Superannuation Fund (SMSF)?
A: An SMSF is a private superannuation fund that you manage yourself, offering you more control over your retirement savings and investment choices. Unlike retail and industry super funds, the members of an SMSF are also the trustees, giving them the flexibility to tailor their investment strategy to suit their individual needs and retirement goals.
Q: What are the advantages of an SMSF?
A: The key benefits of an SMSF include:
– Greater control over investment decisions
– Broader investment options, including direct property and physical precious metals
– Potential cost savings for larger balances
– Tax advantages through effective tax planning strategies
Q: What are the requirements to set up an SMSF?
A: To establish an SMSF, you need:
– A maximum of four members
– Each member must be a trustee or director if a corporate trustee is used
– The fund must be set up as a trust and registered with the Australian Taxation Office (ATO)
– A trust deed outlining the rules for establishing and operating the fund
Q: What are the steps to set up an SMSF?
A: Setting up an SMSF involves:
1. Choosing trustees: Decide between individual trustees or a corporate trustee structure.
2. Obtaining a trust deed: Create a trust deed that complies with superannuation laws.
3. Appointing trustees: All members must be appointed as trustees.
4. Registering with the ATO: Register the SMSF with the ATO and obtain an Australian Business Number (ABN) and Tax File Number (TFN).
5. Opening a bank account: Open a separate bank account for the SMSF to manage contributions and investments.
6. Creating an investment strategy: Develop a documented investment strategy that outlines the fund’s objectives and plans.
Q: What are the ongoing responsibilities of SMSF trustees?
A: Trustees must:
– Comply with superannuation and tax laws
– Prepare financial statements and tax returns annually
– Conduct an annual audit by an approved SMSF auditor
– Review the investment strategy regularly
– Keep detailed records of fund activities
Q: What are the costs involved in running an SMSF?
A: Costs include:
– Initial setup fees (legal and accounting)
– Annual audit fees
– Ongoing administrative costs (accounting, tax return preparation)
– Investment-related expenses
Setting Up a Discretionary (Family) Trust
Q: What is a discretionary (family) trust?
A: A discretionary (family) trust is a legal structure where a trustee holds and manages assets for the benefit of beneficiaries, typically family members. The trustee has discretion to distribute income and capital among the beneficiaries as they see fit.
Q: What are the benefits of a discretionary trust?
A: Key benefits include:
– Asset protection: Trust assets are generally protected from creditors.
– Tax planning: Income can be distributed to beneficiaries in lower tax brackets, potentially reducing the overall tax liability.
– Flexibility: The trustee has discretion over income distribution.
Q: How do you set up a discretionary trust?
A: Setting up a discretionary trust involves:
1. Choosing a trustee: Decide who will act as the trustee.
2. Drafting a trust deed: Create a legal document outlining the trust’s terms and conditions.
3. Settling the trust: A settlor transfers a nominal amount to the trustee to create the trust.
4. Registering the trust: Apply for an ABN and TFN for the trust.
5. Opening a bank account: Open a separate bank account for the trust.
Q: What are the ongoing responsibilities of trustees?
A: Trustees must:
– Comply with the terms of the trust deed
– Keep detailed records of trust activities
– Lodge annual tax returns for the trust
– Distribute income and capital according to the trust deed
Q: What are the costs involved in running a discretionary trust?
A: Costs include:
– Initial setup fees (legal and accounting)
– Ongoing administrative costs (accounting, tax return preparation)
– Investment-related expenses
Investing in Physical Precious Metals
Q: Why invest in physical precious metals?
A: Physical precious metals, such as gold and silver, offer several benefits:
– Diversification: Precious metals can provide diversification to an investment portfolio.
– Hedge against inflation: Precious metals often retain value during inflationary periods.
– Tangible asset: Physical metals are tangible and not subject to counterparty risk.
Q: How can you invest in physical precious metals?
A: Ways to invest include:
– Direct purchase: Buying bullion bars or coins from dealers. I purchase direct from the Perth Mint and ABC Bullion
– Allocated storage: Purchasing metals stored in a secure facility with specific ownership.
– Unallocated storage: Purchasing metals held in a pooled account without specific ownership
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