Keeping Records

If you are going to form one new financial habit this year, make it good record keeping. A system that is easy to follow will improve your financial life both today and for years to come. With all of the annual investment statements and tax documents you are about to start receiving, this is a great time to start.

Whenever I go to my mailbox, I am on the receiving end of countless advertisements, credit card offers, insurance notices, and more. It can be challenging to decide what is important and what can be thrown away. The record keeping system I have implemented has made the decision making process easier to manage.

I have three buckets that my personal and financial documents go into. These buckets vary depending on the importance of the information and legal requirements associated with them. I don’t keep these documents in actual buckets, as you might imagine. Documents are stored in different ways, which is also dependent on their importance.

Keep a few documents forever. Your passport, birth certificate, Social Security card, property deeds, car titles and marriage certificate all fall into this category. Financial and estate documents to keep forever include Wills, Power of Attorney, tax returns, life insurance policies, bank account information, and any legal filings. The general rule is: if it’s difficult to replace, keep it safe.

A lesser known document to keep forever is your Roth IRA contribution history. The annual contributions you’ve made to your Roth IRA can be withdrawn at any time--tax and penalty free. You want to keep track of how much you have contributed, as that may be difficult to remember 20 years from now.

If you use a health savings account (HSA) as a retirement account, keep your medical receipts. Funds in your HSA can be withdrawn tax-free with proof of past medical expenses.

Keep your tax documents for 3-7 years. The IRS recommends keeping your tax related information for three to seven years. This includes all of the information that you use to complete your tax return. Including, but not limited to, W-2, 1099 statements, K-1, and proof of the deductions you are taking. You also need to keep records indefinitely if you do not file a return or file a fraudulent return.

Have documents that the IRS no longer requires? Confirm that your insurance company or creditors don’t need the documents before discarding. They may have longer holding period requirements.

Keep these documents for one year or less. This section includes most of your monthly expenses and records. Bank statements, credit card statements, utility bills, pay stubs, internet and phone bills should all be reviewed for accuracy. If you need any of the information to claim as a deduction for business purposes, keep them as you would your tax documents. After you no longer need them and have confirmed their accuracy, feel free to discard.

Properly store and destroy your documents. Take extra care of documents you need to keep for a long period of time. A safe deposit box at your local bank or a fireproof safe at home are a worthy purchase. To protect yourself from a potential burglary, consider hiring a contractor to physically secure your safe to your home.

What about the documents you can now destroy? Purchase a cross-cut paper shredder to effectively destroy the information. If you need to rid your home of a large number of documents, you can find a commercial paper shredding business in your hometown.