Keeping your financial documents in order can be a source of stress for many. Maybe your receipts are in a shoe box, your bank and brokerage statements are with the rest of your saved mail, your insurance policies are in the closet and your warranties are in a drawer somewhere in the kitchen. Or at least you think this is where everything is until you try to find it. It can be difficult to access something you need when you have so many different documents in so many locations.
You, Your Advisors and Your Heirs Can All Benefit
Getting your documents in order can provide you with additional peace of mind and convenience, but you’re not the only one who will benefit. Your financial professionals such as accountants, attorneys, and financial planners will all be able to service your needs easier when you are able to quickly attain information they may need to do their job. Your heirs will also benefit from better organization, making the settling of your estate much easier.
One Location May Work, Physical or Digital
Your location of choice can be a file cabinet, safe or even a digital option. (If you prefer digital, make sure to examine if it’s possible to integrate your storage with other financial software you use such as your bookkeeping program.) No matter what you choose, here are the most important financial documents you should keep organized together.
Brokerage and Investment Statements
Annual statements should be kept for your investment accounts for at least three years, although if you have made nondeductible contributions to a traditional IRA you will want to maintain the supporting document (IRS form 8606) longer. It is your responsibility to substantiate that certain contributions to your IRA account were non-deductible, meaning that you will be taxed on the growth but not your own contribution when withdrawn.
Bank Checking and Savings Account Statements
Keep bank statements on file for three years. Some situations like lawsuits and divorce might make statements from an additional time frame useful. As we will reiterate elsewhere, any documents that substantiate a home improvement (not repairs but a material improvement like a room addition) will need to kept for at least the ownership period of the property. This is because they can increase your cost basis in the home, reducing capital gains taxes if the home is sold at a profit exceeding the amount that is exempt. (If certain conditions are met this is usually $250,000 for a single homeowner or $500,000 for those who file a joint return.)
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Credit Card and other Loan Statement
Keep credit card statements that may have tax-related purchases (costs related to a home addition, for example) for at least seven years or as long as that issue is relevant. Keep in mind that some credit card companies provide additional warranty protection for some purchases (double the warranty on appliances, for example) as an incentive to use their card. Check with your card company for specific features and then save any applicable statements for the relevant time frame.
Mortgage and HELOC Documents and Statements
Your mortgage interest is a valuable tax deduction, but make sure you keep track of when the debt was acquired. Those who received mortgages prior to December 15, 2017 may be able to deduct interest associated with more than the current $750,000 limit of indebtedness.
Home Equity Lines of Credit are a bit more complex. Although up to $100,000 of HELOC debut used to be deductible, homeowners can’t receive deductions for HELOC debt going forward. For those with debt acquired prior to December 15, 2017, interest may still be deductible if used to acquire or substantially improve the property. If you have a home equity balance from credit card consolidation, you will not be able to deduct the interest. Have a balance that’s a mixture? You can use only the proportional amount related to acquisition. Be sure to consult your tax and financial planning professionals prior to using a mortgage or HELOC to refinance other debts since you will often be moving from an unsecured to a secured type of debt. You’ll want to avoid doing so unless there is a meaningful tradeoff.
Social Security Statements
Keep a print out of your current or estimated future Social Security benefit. You can view your benefit information and history of earnings at www.ssa.gov by logging in or creating an account. If this is your first time viewing this record, make sure that your entire earnings history looks accurate with no years indicating zero earnings that you know you worked in a job that withheld for Social Security. (This may not be the case for all types of income such as self-employment income from years where your expenses exceeded your earnings reported on 1099s or otherwise, for example.) Review annually for accuracy each following year as the records are updated.
Tax Returns (Federal and State)
Your tax documents should definitely be included. You’ll want to retain at least three years of your federal and state returns which is the time period in which you can opt to file an amended return. You may wish to keep records even longer if a previous year’s return still relates to activity in the current year.
You should keep tax records related to real estate as long as you own the asset. Improvements or additions to your primary residence are one example since they can increase the cost basis of the home. Your purchase price may have been $200,000, but if you spent an addition $25,000 in construction costs for an additional room five years later, you would have an adjusted cost basis of $225,000, reducing the amount of any future sales price that would be considered profit. As mentioned previously, you may wish to retain bank statements longer when they contain this specific information.
For those who are business owners, maintaining payroll records for seven years is necessary. If you use a vendor to provide your payroll services, be sure to ask about options for both physical delivery of records but also potentially digital delivery and integration into any financial software you use.
Employee Benefit Statements
At a minimum, you should save your most recent month or quarter of employee benefit statements. While you’re at it, make sure you have an updated copy of your beneficiary designation selection for any relevant benefits and that this choice reflects your current wishes. This is also a good point to mention that you should consult the estate planning attorney who drafted your trust before making it the beneficiary of your retirement account at work. If drafted correctly a trust can work as a named beneficiary but many trusts are not properly drafted to do so. If this is the case, you may wish to directly name your preferred primary and contingent beneficiaries.
Insurance Policies and Statements
A copy of all insurance policies and identification cards should be kept on file in addition to copies located in your wallet or car in the case of auto or health insurance. While assembling these documents, you may wish to review life insurance policies to confirm which features can be altered over time. You may also wish to consider if your current amount of coverage meets your needs or if your situation has changed and purchasing additional coverage or canceling unneeded coverage may be appropriate.
Here’s an additional tip for auto insurance: If you have points on your license or an accident, keep a copy of your driver record with the policy as well if you live in one of the few states (California, for example) that do not allow your insurer to adjust your policy rate mid-contract. If you have one or more event (a ticket or accident) that falls off before the end of your contract period, you may want to shop different companies to get the savings associated with the removal of the point earlier.
After your surgery or conclusion of treatment records may need to be kept for up to seven years if expenses were deductible.
Marriage and Divorce Records
This might seem like an odd candidate for financial documents, but proof of your marriage or divorce can sometimes be needed to alter existing accounts (removing a former spouse as the beneficiary on a retirement account, for example) or claiming your social security benefit based on an ex-spouse’s earnings rather than your own. (Those who were married at least ten years may wish to claim on their ex-spouse’s earnings when filing for Social Security benefits if this amount is higher.)
For those who have experienced the recent loss of a spouse or of a dependent, it can often be surprising not only how many times they are asked to provide a copy of a death certificate, but also how often an original copy with a raised seal is required. Once the estate of the deceased is settled it can still be a good idea to retain a few original copies in case you wish to file for Social Security based on the decedent’s earnings record or if additional accounts exist elsewhere that are not updated (life insurance or retirement) naming them as a beneficiary. Often beneficiaries are not aware of life all life insurance policies at the time of death. Insurers have a variety of records they can use to determine when a policyholder is now deceased and beneficiaries should be notified. This may not be immediately after the loss occurs.
Estate Planning Documents
A copy of your will, trust and other relevant estate planning documents should be readily available. As is the case with many items listed here, it may also be a good opportunity to review these items to ensure that they are still current. It’s generally a good idea to review your will and trust at least annually or when a material change occurs. What constitutes a change? Updates in tax or other laws affecting your documents, the death, marriage or divorce of a party named as a beneficiary, the birth of additional children or grandchildren and changes in your wishes are all good reasons to review your estate planning documents.
Last but not least, make sure that any trusts are not just accurate and up to date but funded with any relevant assets you wish to be owned by the trust. This may involve changing all real estate, bank, and brokerage account records that you wish to reflect ownership inside the trust.
Warranties should be kept until expired unless you have had in-warranty repairs while the policy is in force. Make sure you keep a record of that repair along with the initial warranty since many policies will guarantee work done while the additional warranty was in force for a specific period of time, even if this extends beyond the length of the general warranty. You’ll potentially continue to have coverage for repairs related to that specific issue for whatever additional period of time is specified. As mentioned in the section on credit card statements, some extend the manufacturer’s warranty on items purchased with the card. You may wish to make a note along with your warranties of any additional benefit you may have from your card company.
Unless your utility payments relate to the business use of your residence, it’s unlikely you need to keep your bills for an extended period of time. Keep an eye out for any significant changes from the most recent month and then toss the previous month.
Consider Going Digital
If all of these documents are overwhelming, consider going digital. You can purchase a scanner with a feeder feature allowing you to easily capture multiple pages at once. Some advanced bookkeeping software will actually input data from receipts and certain other sources automatically, further simplifying your financial life. Be sure to keep the originals in addition to a digital back up a thumb drive or other device in case of issues with your main computer.
Work with a Professional
With so many different areas of your financial life to evaluate, consider guidance from a qualified professional. This might not only improve your financial situation. It can also reduce stress and increase convenience.