Many people have financial documents scattered all over the house – on the kitchen table, underneath old newspapers, in the hall closet, in the basement. If this describes your financial “filing system,” you may have a tough time keeping tabs on your financial life.
Organization will help you, your professional advisors... and even, your heirs. If you’ve got a meeting scheduled with an accountant, financial consultant, mortgage lender, or insurance agent, spare yourself a last-minute scavenger hunt. Take an hour or two to put things in good order. If nothing else, do it for your heirs. When you pass, they will be contending with emotions and won’t want to search through your house for this-or-that piece of paper.
One large file cabinet may suffice. You might prefer a few storage boxes or stackable units sold at your local big-box retailer. Whatever you choose, here is what should go inside:
Organize them by type: IRA statements, 401(k) statements, mutual fund statements. The annual statements are the ones that really matter; you may decide to forgo filing the quarterlies or monthlies.
In addition, you will want to retain any record of your original investment in a fund or a stock. (This will help you determine capital gains or losses. Your annual statement will show you the dividend or capital gains distribution.)
If you have any fear of being audited, keep the last three years’ worth of them on file. You may question whether the paper trail has to be that long, but under certain circumstances (lawsuit, divorce, past debts), it may be wise to keep more than three years of statements on file.
Credit Card Statements
These are less necessary to have around than many people think, but you might want to keep any statements detailing tax-related purchases for up to seven years.
Mortgage Documents / Statements and HELOC Statements
As a rule, keep mortgage statements for the ownership period of the property plus seven years. As for your mortgage documents, you may wish to keep them for the ownership period of the property plus ten years (though, your county recorder’s office likely has copies).
Your Annual Social Security Benefits Statement
Keep the most recent one, as it shows your earnings record from the day you started working. Please note, however: if you see an error, you will want to have your W-2 or tax return for the particular year on hand to help Social Security correct it. (1)
Federal and State Tax Returns
The I.R.S. wants you to hang onto your returns until the period of limitations runs out – that is, the time frame in which you can claim a credit or refund. Keep three years of federal (and state) tax records on hand and up to seven years to be really safe. Tax records pertaining to real property or “real assets” should be kept for as long as you own the asset (and for at least seven years after you sell, exchange, or liquidate it). (2)
What if you own a business or are self-employed? Retain your payroll statements for seven years or longer, just in case the I.R.S. comes knocking.
Employee Benefits Statements
Does your company issue these to you annually or quarterly? Keep, at least, the most recent year-end statement on file.
Life, disability, health, auto, home, etc. You want these policies on file, and you want policy information on hand for the life of the policy plus three years.
Medical Records and Health Insurance
The consensus says you should keep these documents around for five years after the surgery or the end of treatment. If you think you can claim medical expenses on your federal return, keep them for seven years.
You only need them until they expire. When they expire, toss them.
Do you need to keep these around for more than a month? No, you really don’t. Check last month’s statement against this month’s; then, get rid of last month’s bill.
If this seems like too much paper to file, buy a sheet-fed scanner. If you want to get really sophisticated, you can buy one of these and use it to put financial records on your computer. You might want to have the hard copies on file, though, just in case your hard drive and/or your flash drive go awry.
1 - ssa.gov/pubs/EN-05-10081.pdf [7/17]
2 - irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-long-should-I-keep-records [1/24/17]
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.