Your Guide to Personal Paperwork Filing Practices
You may be surprised how many people have financial documents scattered all over their homes. Or maybe you’re not surprised… maybe this sounds just like you. If this describes your financial “filing system”, you may have a tough time keeping tabs on your financial life … especially once you reach a point when you need ready access to those assets.
Organization is invaluable when it comes to financial management. It will help not only you, but your retirement financial advisor, spouse… even your heirs. Take an hour or two to put things in good order for everyone’s benefit (today and tomorrow) to avoid a last-minute scavenger hunt the next time you have a financial meeting or when the day comes that you pass away and someone else has to hunt for your documents. One filing cabinet may be all you need, though a few storage boxes or stackable units can do the job, too.
Once you have found a container for your documents, here is what you ought (and ought not) to keep stored:
Organize them by type (IRA 401k rollover, mutual funds, etc.) and be sure that you at least have annual statements on hand. Retain tax Form 8606s (which reports nondeductible contributions to traditional IRAs), Form 5498s (fair market value information IRA statements) and Form 1099-Rs (which includes IRA income distributions). Also retain any record of original investments in a fund or stock to help determine capital gains or losses—it should be on annual statements).
If you have any fear of being audited, keep the last three years’ worth of bank statements on file. In certain circumstances (lawsuits, divorce, past debts), it may be wise to hold onto more than three years of files.
Credit card statements
These are less necessary to have around than you might think, but if any forms document tax-related purchases, hang onto them 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. Don’t have them anymore? The county recorder’s office probably has copies.
Annual Social Security benefits statements
Always keep your most recent one, as it shows your earnings record from the day you started working. Note, however, that if you see an error, you will want your W-2 or tax return for the year in question on hand to help the Social Security Administration correct issues.
State and federal tax returns
The IRS recommends that you hang onto your returns until the period of limitations runs out, i.e., the time frame within which you can claim a credit or refund. Standard IRS audits look at your past three years of federal tax records, so keep at least three years of records on hand. If you really want to be safe, hang on to up to seven years-worth of documents. Any tax records pertaining to real property (or “real assets”) should be kept for as long as you own that asset, plus seven years after it is sold/exchanged/liquidated.
Retain payroll statements for seven years or longer if you own a business or are self-employed, as these will be helpful in the event of an audit.
Employee benefit statements
If you company issues these annually or quarterly, keep at least the most recent year-end statement on file.
Whether it is life, disability, health, auto, home or otherwise, be sure you have the policies on file for the life of the policy plus three years.
Medical records and health insurance information
The consensus is that you should keep these files around for five years after a surgery or end of significant treatment. If you think you could claim medical expenses on your federal return, keep these records for seven years.
Hang onto warranty documents until they expire. After that point, they are just clutter.
Do you need to keep them around for more than a month? Not really. Check last month’s statement against this month’s for comparative purchases, then toss the old bill.
Does this seem like a lot of paperwork to keep on hand? It can be… especially over the course of your lifetime. Consider buying a sheet-fed scanner and scanning financial records onto your computer if you do not want to file so many papers. Consider having the hard copies on file in case your hard drive or flash drive fails, or buy a backup hard drive to save a secondary record.
No matter how you go about saving your files, the important thing is that you know what to keep (and what not to) to make life easier in the future. Have questions? Let us know how we can help. Contact us or give us a call at 724-382-1298.