Organizing Financial Records

“This year, I’m going to get organized!” As New Year’s resolutions go, getting organized ranks third, right after losing weight and exercising more. There is no shortage of books, articles, kits, software, and consultants to help you get organized. And one area of focus is getting and keeping your financial records organized.

Your organizational system does not have to be elaborate- figuring out what works best for you is most important. Would you prefer to use a computer or a file cabinet? There is no wrong answer. Keep it simple with an eye on easy maintenance. If you choose a computer filing system, have backup copies on a portable storage device and make sure that your computer files are secure. (See our blog Online Precautions to Keep Information Safe.)

Regardless of which system you choose, your files should have simple, commonplace names (e.g., banking, insurance, vital records).

Some suggested labels are:

For Current Files

  • Income – Keep current paystubs, W-2s and 1099s. Information in this folder will be used to file your taxes and moved to a permanent folder with your completed tax return.
  • Expenses – Programs such as Quicken now make this easy. Much of this content can be shredded as soon as the transaction hits your credit card or bank statement; move the rest to a relevant permanent file. Include a record of your charitable contributions.
  • Bank Accounts – If you still receive them, paper statements and canceled checks should be kept for seven years. Online bank statements should be available for up to seven years.
  • Investments – Each investment account should have a sub-file. Keep monthly statements until the end of the year. If the end-of-the-year statement shows a complete transaction history for the year, you can purge the monthly statements. Keep trade confirmations for tax filing, along with rental property and limited partnership documentation here.
  • Mortgages and other loans – Keep documents related to mortgages and other types of loans, including student and auto, at least until they are paid off. Keep confirmation that the loan has been paid off in a permanent file.

For Permanent Files

  • Income Taxes – Keep a copy of each federal and state income tax return along with supporting documentation for at least seven years. The IRS has three years from the filing date to audit your return for good faith errors, six years to challenge your return if it estimates you underreported your income, and indefinitely if you failed to file your return or filed a fraudulent return.
  • Estate Planning – This should include wills, durable powers of attorney for both medical and financial matters, gift tax returns and beneficiary designations for retirement accounts and insurance policies.
  • Insurance – Create a sub-file for each type of insurance policy and related information.
  • Employee Benefits – This is a good place for all employment-related files such as employment contracts and retirement benefits for current and past employers.
  • Home Inventory – Records pertaining to the cost of the purchase of a residence as well as any permanent improvements to that property should be kept for six years after you sell that home. Records of furnishings, including art and jewelry, can be kept here. If you have done a pictorial inventory, this is a good place to file it.
  • Vital Records – Create a file for each family member. Keep documentation like birth certificates, Social Security cards, diplomas and professional licenses, marriage licenses and military discharge papers. Some experts say to keep these in a fireproof box or safe deposit box. If your financial or tax advisor offers a secure electronic vault, you may want to store a copy there as well.

Then consider dividing files into current and previous years, if applicable. At the end of each year, usually as you organize your files for the preparation of your tax return, just clean out the current file and shred what you will no longer need.

Maintaining organized financial records is important for tax preparation and protection in the event of an audit. But being able to access or recreate your information in the case of disaster is also a consideration. If someone else needs to act on your behalf, they must be able to locate your records. Be sure to tell a trusted contact where the files are kept. You may also want to provide a letter of instruction.

Getting and staying financially organized should be an important part of your annual financial review. For more information on how to become financially fit, read our blog Schedule Your Annual Financial Checkup.

Allison Donaldson

Allison joined HTG in 2013. As an advisor, she works with clients on comprehensive financial plans and building suitable investment portfolios. She is also an integral part of the firm’s marketing team.

Allison is a CERTIFIED FINANCIAL PLANNER™ practitioner and a graduate of Hamilton College and New York University’s Stern School of Business. Allison has three sons, two of whom are out of college and financially responsible. She’s still working on the youngest.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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