People have been debating what documents to toss out, which to keep, and where to store them, since the days things were written in stone. This is especially the case for financial documents, which contain sensitive personal information. It can feel stressful organizing every single document, yet it is often necessary.
It’s why a frequent question we’re asked is: What should I do with my statements, tax returns, etc.?
At Advance Capital Management, the protection of our clients’ sensitive information is one of our highest priorities. That’s why we have our own information technology team to ensure all information and documents are transferred and stored safely.
It’s new technology that has added new twists to the “keep or shred” debate. What you have been doing all these years may be outdated and unnecessary. This article provides some do’s and don’ts of organizing your financial documents, so you can get rid of the clutter and stress that comes with it.
The reason to organize your financial documents
Having your financial documents in order can help simplify your finances, save time and reduce stress. But most importantly, it prepares you and your family for unexpected events – forced retirement, disability, incapacitation or untimely death. During these events, you or a loved one will need access to documents.
The issue then becomes, which documents do you have to physically have with you, which can you scan, and which can you not worry about?
Keep, shred or scan?
Now that most documents are digitized and easy to store online, the general answer is you can scan everything.
There are only a handful of documents you may need to really preserve as original copies, such as your birth certificate, deeds/titles and Social Security card. You should consider storing these in a safe deposit box or fireproof safe – somewhere that they will not get destroyed.
Most financial institutions will automatically create and store a digital copy of your records and documents. Account statements, insurance policies, bills, quarterly reports, tax forms and even health proxies are documents that are likely stored online that you can conveniently retrieve with a login and password. That means you can often just shred or scan the physical copies you receive.
Generally, you want to keep all your tax documents for about three to four years. That’s because the IRS has about three years to audit you. That includes the documentation to claim all the deductions, if you itemize. For investment accounts, such as an IRA contributions, you may want to keep those documents longer, since the IRS has a longer time period to audit you, if it suspects you’ve underreported.
House records such as purchase price information and the costs of improvements to your property, like remodeling should be kept the duration of ownership. That’s because you are going to have to prove the cost basis for your house, or your primary residence. This will determine the capital gains on the sale of your home.
Again, these are all items that you can scan and store on a personal cloud storage platform. It can be as simple as scanning documents on your printer or snapping a picture on your phone. That way you don’t really need to worry about whether you have room to store them long enough.
Old school: safe deposit box
Some people are still more comfortable with hard copies of their financial documents, excluding things like account statements and bills. That typically means storing them in a safe deposit box. There’s nothing necessarily wrong with doing so, but keep in mind that it has some drawbacks.
For one, you should not keep estate documents in a safe deposit box. The reason is that if you die, and your relatives don’t have access to your safe deposit key, they’re not going to be able to retrieve the information they need to settle your estate.
Therefore, you may want to inform a person you trust where you keep the key. You may want to also digitize your documents as well for an alternative way to access them when needed.
New school: online accounts
As mentioned, most financial institutions store your documents within your online accounts. And, you can store other documents yourself on the cloud, which is accessible from anywhere. This keeps things safe from physical harm, whether it’s a burglar or house fire.
The challenge is trying to remember the dozens of passwords to access all these accounts. One option is to write them all down and store the list in a safe location. Or, you can save them on your computer and personal storage platform.
But you may want to share them with a trusted friend or family member as backup. Some platforms, such as Apple, don’t have an emergency access feature if you forget your password. The safest option is a password manager, like LastPass, that will store your login and password information, but that also offers an emergency feature to allow others into it if you can’t.
Fortunately, technology makes it easier to manage your financial documents. But it’s still up to you to inform others of where you store them, so they are accessible during an emergency. If you have a financial adviser, consider working with them to determine what financial documents you specifically should keep, shred or scan.
Have you taken the steps necessary to be on track for retirement?