Retirement fund co-contribution arrived

DW had made a $1,000 "undeducted" contribution into her BT superannuation account last financial year, so she was eligible to receive a $1,500 "government co-contribution" from the ATO. The tax office wrote last month stating that they couldn't pay the contribution into her old BT account (because she had closed it and rolled her retirement savings over into our new SMSF in July) and asked for details of a complying fund which would accept the payment.

I sent in the details of her SMSF account and a cheque arrived via the E-SuperFund administrator yesterday. I was relieved to see that there were no problems accepting the payment -- apparently not all SMSF Trust deeds cater for recent changes such as the co-contribution, TRPs and so on.

I deposited the cheque into our SMSF bank account at lunchtime on Friday. Hopefully our employer's superannuation contributions owed from last month will also turn up next week and I'll be able to transfer the cash into our Vanguard HighGrowth account.

I also made an undeducted contribution into my Superannuation fund last FY (not the full $1,000 since my taxable income was too high to qualify for the maximum $1,500 co-contribution). I should be entitled to some amount of co-contribution, but I haven't seen it turn up in my BT Superannuation account as yet.

Copyright Enough Wealth 2008

What If You Make Maximum Retirement Contributions For 20, 30, 40 Years? (Superannuation)

No Credit Needed did an interesting post regarding what amounts can be accumulated by Americans maxing out their retirement contributions. In this post I show similar calculations from the Australian perspective, “What If… You Make Maximum Retirement Contributions For 20, 30 or 40 Years?”

Notes about the charts -

Annual contributions are held steady at 2008 maximums ($50,000 in tax-deducted contributions [employer SGL contributions and salary sacrifice], and $150,000 in undeducted contribution]
Returns are annual and do not fluctuate
Interest is calculated using year-end-balance
I used percentages between 6% and 14% and a span of 1 to 40 years.
Tax on tax-deducted contributions is 15%. Tax on interest is calculated at 15% (it would be lower for most people as capital gains are taxed at 10% within superannuation during accumulation phase, and 0% if realised during in pension mode).



Copyright Enough Wealth 2007

Save Money on your Superannuation Investments

There is an interesting new service available from a recently launched company All My Funds which has potential to save considerable amounts of money. There are many hidden costs that can be associated with superannuation investments and insurance. For a set fee of $275 you can get a SOA (statement of advice) that compares your particular superannuation fund with other similar superannuation funds. Although the comparison funds are not specific recommendations, the information would indicate if your fund is costing you too much in fees and charges. A sample of how this report would look is provided on the AllMyFunds.com website.

The other way that All My Funds could save you money is via their subscription service of $385 pa. For this annual fee you will get a rebate of contribution fees (up to 5%), annual trailing commisions (up to 1% per annum) and life insurance commissions (30+% of premiums). Often a superannuation fund will either pay fees and annual trails to a 'financial advisor' that was nominated when you joined the fund (even if you get no follow-up advice), or whill keep this fee themselves if you invested directly with a superannuation fund and don't have an advisor. By using the rebate service you could get rebates worth more than the annual fee paid to All My Funds.

Copyright Enough Wealth 2007

SMSF - the Devil is in the Details

No wonder they call it "Self-managed". Even with the fund administration, auditing and tax returns out-sourced to eSuperFund there is a fair bit of "paper warfare" involved (at least initially).

Investing our SMSF money into the Vanguard fund is turning out to be less simple than I had initially thought. Just when I was about to apply to invest in the Vanguard Fund online through our SMSF's e*Trade account, I noticed in the fine print that e*Trade would be charging an annual 0.66% "portfolio fee" for managed fund investments. This makes a mockery of our attempt to minimise fees and charges using a SMSF, and would have come as a big shock at the end of the year if I had skimmed over that part of the "fine print". Managed fund investments made via e*Trade would be at the "wholesale" fund management rate, but this isn't a significant benefit when investing in the Vanguard Fund as the retail fees are quite low anyhow (not as low as in the US, but that's a whole other story).

For example;

Investing via e*Trade Managed Fund Service:
Amount     Vanguard Fee  e*Trade       DOLLAR
Invested   Wholesale     Porfolio Fee  COST pa
 $50,000   0.37%         0.66%           $515.00
$100,000   0.37%         0.66%         $1,030.00
$200,000   0.37%         0.66%/0.55%*  $1,950.00
$500,000   0.37%         0.66%/0.55%*  $4,710.00
*e*trade fee is 0.66% on amounts up to $100,000
and 0.55% on amounts from 100-500K, then 0.5% on
amounts above $500K. Vanguard Wholesale fee via
e*Trade is 0.37% on all amounts invested.

Investing via direct application to Vanguard
(application lodged via eSuperFund):
Amount     Vanguard Fee  DOLLAR
Invested   Retail        COST pa
 $50,000   0.90%           $450.00
$100,000   0.775%**        $775.00
$200,000   0.5625%**     $1,125.00
$500,000   0.43%**       $2,150.00
**Vanguard Retail fee is 0.90% on amounts
up to $50,000 and 0.60% on amounts from
$50-$100K, then 0.35% on amounts above $100K.

So we could have ended up paying a couple of thousand dollars in extra fees each year if I hadn't been paying attention.
The other problem with investing via e*Trade is that you can't choose automatic reinvestment of distributions, and any additional investments in the same fund have to be made through the same process.

Investing directly by sending an application to eSuperFund should allow the initial investment to be made direct from the SMSF via BPay. The automatic reinvestment of distributions is possible, and I should be able to 'set and forget' an automatic additional investment by BPay each month.

The other bonus of investing directly (via eSuperFund) is that eSuperFund will have electronic 'read only' access to the Vanguard account, so I won't have to forward a hardcopy of the annual fund report.

The other wrinkle I found out when I tried to transfer the $300,000 back from our SMSF investment sub-account into the main account was that the ANZ bank hadn't correctly setup the accounts. Our 100-pt ID check data was confirmed for the main V2 bank account, but hadn't been set for the investment sub-account. This meant that while I had been able to transfer funds INTO the investment account, I wasn't able to transfer the funds back OUT into the main account electronically! Luckily this won't matter until the Vanguard application form has been processed and I need to make the BPay funds transfer for the investment.

Finally, it also turns out that when eSuperFund said that the normal $5,000 account balance minimum for an ANZ V2 account was "waived" in actually just means that we get paid interest on balances below $5,000. The ANZ bank system is still setup so that the "available balance" is always $5,000 less than the account balance. This means that there will always be $5,000 sitting in the ANZ V2 account that can't be invested into the Vanguard Fund or other investments (such as direct share purchases through e*Trade). It's not a huge problem since the $5K will be earning interest, but it still means an extra 1.5% of our SMSF balance is unavoidably allocated to "CASH" on top of whatever allocation to cash exists within the Vanguard High-growth fund (around 4%).

Copyright Enough Wealth 2007

Retirement Funding

We're still waiting for our employer contributions to start appearing in the bank account of our Self-Managed Superannuation Fund. Apart from the intial $200 deposit I made last June nothing has appeared in the account yet. We notified our employer to direct our 9% compulsory employer contribution plus our "salary sacrifice" amounts into the SMSF from 1 July, and the payroll department has apparently made the change. The employer contributions still go initially to the company's superannuation administrator, who is then supposed to redirect it into the SMSF bank account within a couple of days. As no funds had appeared in the account yet I asked payroll in what timeframe I should expect the money to appear in our SMSF account. It turns out that although the superannuation contribution amount is printed on each fortnightly payroll slip the contributions are only sent in at the end of each month. So I should see the July contributions hit the SMSF bank account by the middle of August. As soon as I know that no additional contributions are going into the old fund we can send in the paperwork to close DWs account and "rollover" the entire balance into our SMSF. I'll also send in the request to rollover the bulk of my account balance into our SMSF, just leaving enough in the old fund to cover my insurance premiums. It's cheaper to get death & TPD cover through our company superannuation scheme as we get group rates and the premium is paid out of pre-tax dollars. Outside of superannuation life insurance premiums are generally higher, and aren't tax deductible. In contrast, income protection insurance is tax deductible, so it's generally better to obtain it outside of superannuation.

Copyright Enough Wealth 2007

A Nice Opportunity for Beginning Investors

It's a pity that I already have several online savings accounts and mututal fund investments, because the new offering from rabobank looks very attractive. They offer an online savings account with no fees or minimum balance with an interest rate of 6.6%, and from this account you can invest in wholesale mutual funds for a low entry fee of only 0.75% (compared with up to 5% entry for retail funds going direct or via a planner, or 0% for a retail fund investment via a discount broker). They are offering 0% entry fee, but only until the end of July. But the 0.75% fee is still good value as it gives access to wholesale funds (which usually charge lower management fees than their retail fund equivalents) with a minimum investment of only $250.

I'd try out this account and fund investment option if I didn't already have more accounts than I know what to do with. They do offer the account for use with a DIY Superannuation account (SMSF), but I'll have to check carefully how their costs and range of available funds compares with accessing mutual fund investments via e*Trade (I already have an e*Trade account setup for use with our SMSF). One benefit of making out SMSF mutual fund investments via e*Trade is that eSuperFund (which administers our SMSF) has access to transaction data from our e*Trade account. If we invested for our SMSF via Raboplus we'd have to send copies of all the relevant financial info to eSuperFund each year.

I was also thinking about opening a Raboplus account for DS1 and/or DS2, but unfortunately you can't open a raboplus account if you're under 12, so the kids will have to make do with their St George bank accounts and Commonwealth Bank 'dollarmite' savings accounts. It's funny how some banks and Superannuation funds have no problem with opening accounts for a minor (with an adult having authority to operate the account), while others either don't handle accounts for minors at all, or insist on the account being opened in the name of the adult trustee(s).

Copyright Enough Wealth 2007