Ray’s Take Many people save all their financial records, quickly accumulating boxes and boxes of paper, and then find it nearly impossible to locate the one piece of information they need. My mom recently helped a friend move out of her home of 50 years, and found that she kept canceled checks for utility bills that dated back to the 1960s! She was afraid to get rid of them, thinking she might need them someday. I think there are a lot of files and boxes of financial records out there.
The two main reasons to keep financial records are for tax support or to provide proof of purchase or payment. In addition, government issued official documents – passports, social security cards, birth certificates, etc. – should always be preserved and carefully stored.
It’s best to keep tax returns and supporting documents for seven years as the IRS can challenge your returns up to six years back. Records of sold investments and real estate need to be preserved for the same time as they relate to your taxes, too. Checks and bank statements should be kept three years, unless you’re comfortable knowing your bank keeps those records available online.
Non-deductible bills and credit card statements can be shredded as soon as you check them and the next statements arrive. However, you should save receipts for expensive purchases to prove their value in case they become lost or damaged.
Other data to save includes IRA records, W-2 forms (unless you already receive Social Security benefits), titles to homes and vehicles, active insurance policies and home improvement receipts for determining your house basis when you sell.
Ultimately, use common sense – not to mention an orderly system of storage – when determining what to keep and what to shred.
Dana’s Take Properly storing important financial documents is just as important as keeping them. After all, if you can’t put your hands on them when needed, they aren’t doing you much good.
A safety deposit box is a good idea for your most important papers, with a fireproof home safe offering the next best option. Desk drawers or filing cabinets simply don’t provide the best security, plus files stored at your home face the same risks from natural disasters as everything else in your house.
You might want to consider scanning the documents you need to save, then loading those scans onto storable media data such as DVDs or flash drives; and storing all your important financial information in a secure location outside your home. You can even consider an online storage site if you know how to encrypt your files to keep them private. Just ask your tax advisor before tossing the originals.
However you keep your financial documents, keep them organized and review them regularly – there’s no reason to hold the warranty for a laptop that has long ago been recycled.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at firstname.lastname@example.org.