The folks at the Internal Revenue Service have an uncanny sense of timing. Most of us prepare our individual tax returns just as the clocks spring ahead and the calendar indicates the Vernal Equinox will bring longer and warmer days. Best way to celebrate? Clear out the cobwebs, fire up the shredder, prepare to hit the delete button and get ready to clean up your financial life.
The following is an updated list I have shared in the past of which financial documents you need to keep and how long you should keep them. If you have any doubt, it’s better to err on the side of caution and hang on to the document. However, in the digital age, you may find that you don’t have to cope with bulging files any more. In fact, maybe 2018 will be the year that you go paperless, once and for all!
Bank and investment statements: If you manage your accounts online, find out how long your bank/investment company makes your financial documents available after their post date. For those still receiving paper statements, hang on to them for one year. For taxable investment accounts, be sure to flag any confirms of purchases or sales for tax purposes. Hold on to records that are related to home improvements and major purchases until you dispose of the asset.
CAVEAT: If there’s a chance you’ll be applying for Medicaid, keep in mind that many states require five years’ worth of statements.
Consolidate accounts: Do you have orphan accounts that need attention? By combining them, the resulting higher balance may help avoid fees and even help you get better deals. Most importantly, it will help streamline your financial life.
The same rule applies to old retirement or investment accounts that are looking for a home. Combining accounts makes it easier to monitor your entire portfolio and ensure that your money is properly diversified.
Credit card bills: Unless you need to reference a transaction for tax or business purposes, or for proof of purchase for a specific item, you can shred these types of financial documents after 45 days. Like the bank statements, hang on to statements you may need for your taxes, such as charitable contributions.
Tax returns/supporting documents: You may have heard three, six or seven years as the length of time you need to keep tax records. Because the IRS has seven years to audit your returns if the agency suspects you made a mistake, I still recommend that you keep your returns, and all supporting financial documents, for seven years. (I hear you groaning!) If you work with a tax preparer, ask whether they will maintain electronic copies of all returns filed.
Medical records: Given how hard it is to deal with health insurance companies, you should keep medical records for at least a year, though some suggest keeping records for five years from the conclusion of treatment. Retain information about prescriptions, specific medical histories, health insurance claims and contact details for your physician.
Utility and phone bills: Shred these types of financial documents after you have paid them, unless they contain tax-deductible expenses.
House maintenance: Once the above tasks are complete, roll up your sleeves and prepare for Spring-cleaning your home. Considering that a primary residence is one of the largest assets most people own, so putting the time and energy into maintaining it is important.
Make a list of items you need to address, especially damage or messes that may have occurred due to winter conditions. Next, determine how you are going to pay for these projects. After you complete your improvements, don’t forget to update your property/casualty insurance.
A CFP® professional can help you determine which financial documents are important to keep for future reference, consolidate accounts and map out a financial plan for any necessary home renovations.