An SMSF offers greater control over investments, and a wider choice of assets to choose from. But the sole purpose of an SMSF must be to provide funds for retirement.

According to the Australian Taxation Office, there are four key steps to setting up an SMSF.

- Establish the trust

- Elect to be a regulated fund, obtain a tax file number and an Australian business number

- Prepare an investment strategy

- Open a bank account

TheBull says...

SMSFs are popular with investors who want greater control over their super investments. There are many more investment strategies and products available through an SMSF than a public offer fund.

No two SMSFs are ever the same in the way they invest.

It is critical that SMSF trustees ensure that the nature of the fund assets are complying according to Australian Taxation Office (ATO) rules. For example, it is a complying transaction for a SMSF to purchase a residential investment property though the local estate agent that is up for sale, but it is completely non-complying to purchase a residential property from your uncle. Nor can you rent out an investment property owned by the SMSF to your kids, or use fund cash to finance a property purchase.

And while more unusual investments, such as valuable artwork, vintage cars and crates of Hermitage aren't on the banned list, these types of assets must meet the ATO's sole purpose test. This states that members of the fund cannot enjoy a direct or indirect benefit from the investment. So hanging that Van Gogh on your wall isn't going to pass muster.

It is also important to remember that trustees have defined legal responsibilities. These include:

- Lodging an annual income tax return and superannuation fund annual return
- Lodging member contribution statements
- Reporting payments of member benefits for reasonable benefit limit (RBL) purposes
- Appointing an approved auditor to complete the annual audit
- Maintaining records for up to ten years, and
- Complying with investment restrictions.

SMSFs can be time consuming; selecting, managing and maintaining an investment portfolio takes time. While some people may have the confidence and experience to invest directly, others pay for expert advice from financial planners, accountants and stock brokers.

According to IFSA, almost 90 per cent of SMSFs hold shares, with an average share portfolio of around $180,000. Sixty per cent of SMSFs hold property of some kind (residential, commercial or listed property trust), and 58 per cent have managed fund investments.

But ultimately, being your own super boss can be as complex or as simply as you like. It depends on how you, as trustee, want to run the fund, and how you wish to invest. Obviously, a buy and hold approach requires very little effort on a day-to-day basis; a more active portfolio may take a couple of hours a day. For some trustees, running a SMSF is a retirement job.

Transition to Retirement Pension

What does it mean?

A transition to retirement pension is a flexible way to move from work to retirement. On reaching your preservation age (generally 55, but is increasing over time and may be 60 if you were born after 30 June 1964), you can start accessing super (including the preserved portion) via a super pension while maintaining or reducing work hours.

TheBull says...

Many individuals nearing retirement are looking for ways to boost their super savings. With the introduction of government's simpler super reforms in July 2006, it is now possible to do exactly this by making the most of transition to retirement (TTR) rules.

You can take advantage of the transition to retirement rules by salary sacrificing part or all of your employment income into super, while at the same time beginning an allocated pension from your existing super funds. The pension provides an income while you continue working, and is tax free for individuals over 60, and carries a 15% tax rebate if you're aged between 55 and 60.

At the same time you're getting considerable tax benefits from salary sacrificing your income into super, paying only 15% contributions tax, as opposed to PAYE income tax rates of up to 45%.

So at what age is this strategy of most benefit? Most advisers agree that it best suits someone aged 60 or more, or at the very least age 55. Between now and 30 June 2012 an individual can take a pension income stream tax-free and make contributions (both salary sacrifice and employer contributions) up to $100,000 per annum.

To begin a TTR strategy, you must have reached ‘preservation age', in order to access super benefits. This is age 55 if you were born before 1 July 1960, phasing to age 60 for those born after 30 June 1964.

Due to the reduced cash flow, anyone thinking about the TTR strategy should have no debt.

Not all super fund providers offer TTR arrangements.

The fees of setting up a TTR arrangement should be minimal - and if you are able to set up the scheme yourself, no costs should be incurred at all. Once you reach retirement age, the commutation of the TTR pension back to accumulation phase is also allowed and should be at a minimal cost.

Before deciding on whether to set up at TTR strategy, you firstly have to find out what your pension is worth, then check the numbers on your living costs and see if the after-tax income of the pension will cover your needs. Then you need to make an application to the super fund for the pension to commence, and notify your payroll office of your decision to salary sacrifice to superannuation.

The TTR strategy has the Australian Taxation Office stamp of approval, which has stated that it will not apply anti-avoidance provisions where this strategy is employed. The ATO notes: "We would only be concerned where accessing the pension or undertaking the salary sacrifice may be artificial or contrived."

This information is of a general nature only and doesn't constitute personal investment advice.

By www.thebull.com.au - for more articles like this go to The Bull's website Australia's pre-eminent news and investing site for investors and traders, covering shares, superannuation, property, financial planning strategies and more.