I’ve lost count of how many people we’ve helped sort through mounds of documents gathered from the nooks and crannies of their home. Fearful of tossing anything “important,” people stack their paperwork on kitchen tables, stuff it into drawers (especially when company is coming over), or stash it in boxes under the bed. But good record-keeping is vital to lowering stress and maintaining a healthy financial household. If you won’t do it for yourself, consider your heirs! The search for documents that are hard to find can cause untold frustration and, even worse, delays in a timely settlement of an estate. So where do you begin?
First, prep your storage area and sort documents by type. If you want to really streamline filing, purchase a quality scanner or sign up for online access to your financial accounts and store records on your computer. I set up my electronic files to mirror my old filing system. If you go paperless, it is very important to have a good backup protocol with encrypted cloud storage or systematic backup to another device.
File cabinets still work, too, so choose the system you will actually use.
Before sharing some general guidelines I use to determine what should be filed and for how long, please know that these are general guidelines. Check with your professionals for exceptions.
Home and Personal Records
Family records. Birth, marriage, divorce, military discharge, and death certificates – keep permanently.
Medical records/ health insurance. Keep at least five years after the surgery or the end of treatment. If you’ve claimed medical expenses on your tax return, keep for seven years.
Estate plan documents. Check with your estate planning attorney and follow those guidelines.
Mortgages. You may wish to keep mortgage (including HELOC) documents for the ownership period of the property plus ten years. As a rule, keep statements for the ownership period of the property plus seven years.
Insurance – life, disability, health, auto, home. Retain the actual policies in your file. Keep policy information on hand for the life of the policy plus three years. Do not shred documents related to permanent insurance with cash value.
Utility bills. Most companies now have this info available online. Check last month’s statement against this month’s and shred last month’s bill.
Vehicle records. Maintain purchase info and maintenance records for as long as you own the vehicle. Store title records in a safe or safe deposit box.
Warranties. Keep until they expire.
Banking. Once the statements are reconciled, shred deposit slips. Access to three years’ worth of statements is a good best practice. In some circumstances (lawsuit, divorce, past debts) it may be wise to keep them longer.
Credit cards. If receipts and statements are for tax-related purchases, consider keeping seven years.
Employee benefits. Keep year-end statements. Documents related to a defined pension plan from current and former employers should be retained indefinitely.
Investments forms. Organize by registration type: IRA, 401(k), Non-qualified, etc. Retain original paperwork and statements that help determine capital gains, losses, interest or dividends. Purge monthly or quarterly statements and keep annual statements that summarize this information. With IRAs or 401(k)s, it is a good idea to retain Form 8606 (reports non-deductible contributions to traditional IRAs), Form 5498 (“Fair Market Value Information” your IRA custodian sends each May), and Form 1099-R (report IRA income distributions).
Social Security benefits. To access your personal account, go to www.ssa.gov/myaccount. Review your earnings record from the day you started working. If you see an error, you will want to have your W-2 or tax return for the particular year to help the Social Security Administration correct it.
Tax returns. Since the standard IRS audit looks at your past three years of federal tax records, you need to keep three years of federal (and state) tax records on hand, and up to seven years to be really safe. Tax records related 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.
Payroll statements. Shred paystubs after you reconcile them with your W-2. If you own a business or are self-employed, retain your payroll statements for seven years or longer.
If paper threatens to take over your sanity, you’re not alone. With these guidelines, set aside time this fall to get your financial household in order. You’ll be glad you did!
— by Janice Thompson
Thompson is a certified financial planner, and co-founder and CEO of One Degree Advisors, Inc.A frequent speaker on financial topics and a mentor for financial professionals, she also serves on the board of directors for Kingdom Advisors. Learn more at onedegreeadvisors.com.
Advisory services offered through One Degree Advisors, Inc. Securities offered through Securities America, Inc., Member FINRA/SIPC. One Degree Advisors and Securities America are separate companies.