How Self-Managed Super Funds work for US citizenship holders
Published on October 11, 2024

Nick Wee, an IRS Enrolled Agent with 18 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia. *Schedule a consultation with Nick today.
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Table of Contents
Why self-managed super funds are bad news for US citizens and Green Card holders.
To the Internal Revenue Service (IRS), a self-managed super fund (SMSF) is considered a foreign trust, which means US taxpayers may have additional reporting requirements and tax obligations.
But in general, a SMSFs is a type of retirement savings structure that allow individuals to have more control over how their retirement funds are invested compared to traditional, retail super funds in Australia.
How is a retail fund different from a self-managed super fund?
The main difference between a self-managed super fund and a retail super fund—the latter being the type of fund most employers contribute to—is control.
In a retail super fund, members have very limited say over how their money is invested. For example, they might only get to choose between different investment options like “defensive,” “balanced,” or “high growth.”
A defensive strategy might mean that most of the money is invested in low-risk bonds or cash deposits, while a high-growth strategy might involve riskier investments like ETFs and equities. The fund manager makes these decisions, and the member hopes these investments will grow over time.
With a SMSF, individuals have far more control over their retirement savings.
After contributions are made, for instance by an employer, the SMSF trustee decides how to invest those funds. They might choose specific stocks, ETFs, or even use the funds to buy a small rental property.
This level of control is what makes SMSFs appealing to many people because they can tailor the investments to fit their personal preferences, experience, and risk tolerance.
What are the investment options with SMSFs?
SMSFs offer a lot of flexibility when it comes to investment options. You can invest in more than just the standard bonds, stocks, or ETFs that are typically chosen by retail fund managers. Some popular investment options include:
- Direct shares and ETFs: SMSF members can directly buy stocks or ETFs based on their preferences. This is different from a retail fund, where members don’t have direct control over specific stocks in their portfolio.
- Property investment: SMSF members can invest in property if they have a substantial balance in their fund. They might purchase a small rental property, but this property must follow specific Australian superannuation rules—like not being used by the SMSF member or rented to a related party.
- Fixed interest investments: SMSF trustees can choose safer investments like fixed interest options for those who prefer a conservative approach.
Wondering if a self-managed super fund is right for you? Contact us today.
What forms do you need to file with the IRS?
If you’re a US citizen or green card holder with an SMSF, you will need to file several forms with your US tax return, including:
- Form 3520 and Form 3520-A: These forms are used to report foreign trusts, including SMSFs. Not filing these forms can lead to significant penalties, up to US$10,000 per missed form.
- FBAR (FinCEN Form 114): Since an SMSF is considered a foreign financial account, you need to disclose its existence to the US Treasury by filing an FBAR if the account balance exceeds US$10,000 at any point during the year.
- Form 8938: This form is part of the Foreign Account Tax Compliance Act (FATCA) and requires US persons to report foreign assets, including SMSFs, if their total foreign asset value exceeds specific thresholds.
What are the potential problems for US expats with SMSFs?
One of the biggest challenges for US expats holding an SMSF is the difference in how the US and Australia tax these funds.
In Australia, contributions and earnings within a SMSF can receive favorable tax treatment, especially in retirement. However, the US doesn’t recognize these benefits as the assets within the SMSF are taxed as if they were held in the US taxpayers own name, which means expats could end up paying tax on the same income to both the Australian Tax Office (ATO) and the IRS.
Another issue is the administrative burden of managing US tax compliance while running an SMSF. Expats must not only comply with Australian regulations but also ensure all necessary US tax filings are done correctly and on time.
The penalties for failing to file the required forms can be very high, so it’s important for US citizens in Australia to work with a tax professional who understands both US and Australian tax rules.
Is an SMSF worth it for US expats in Australia?
Deciding if an SMSF is right for you depends on your personal situation, risk tolerance, and whether you’re ready to handle the administrative responsibilities.
SMSFs can be a powerful tool for those who want more control over their retirement savings. But for US citizens and green card holders, there are extra challenges to think about.
While the benefits are clear—like greater investment flexibility and the potential for high returns—the complexities of US tax compliance shouldn’t be ignored particularly given the tax treatment of the investments differs between the two countries. Careful planning and expert advice are key to making sure that an SMSF is worth it for expats in Australia.