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Organizing Your Financial Records

If you're moving to a new location or tax time is advancing (or both), what records should you keep and which to discard? Here's a guide produced by our financial advising group, HTG Investment Advisors:

"Next week I’m going to get organized!” If we had a dollar for every time we thought or said that, we could worry less about saving for retirement. There is no shortage of books, articles, kits, software and consultants to help a person get organized but finding what works best for you is the first step.

Would you prefer to use a computer or a file cabinet? There is no wrong answer. If you're not comfortable with the system you do choose, you will probably abandon the project. Keep it uncomplicated with an ease of use that does not require large blocks of time.

Then ask yourself 'what are my reasons for keeping records?' Tax preparation and protection in the event of an audit probably come to mind immediately. But being able to access or recreate your information in the case of disaster should also be a consideration. If someone else needs to act on your behalf, they must be able to locate your records. Be sure to tell your personal representative where the files are kept.

Naming files can be the most daunting task, but once it’s done, everything else falls into place. First, no matter which system you choose, your files should have simple, commonplace names. Next, consider dividing files into current and previous years. At the end of each year, usually as you organize your files for the preparation of your tax return, clean out the current file and shred what you will no longer need.

Some suggested labels are:

For Current Files:

• Income — Information for this section will move to the permanent file with your tax return.
• Expenses — Much of this content can be shredded after one year; move the rest to a relevant permanent file.
• Bank Accounts — Statements and cancelled checks should be kept for seven years.
• Investments — Each investment account should have a sub-file. If the end-of-the year statement shows a complete transaction history, that will suffice. Keep trade confirmations for tax filing, along with rental property, limited partnerships and loan documentation here.

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 is allowed three years from the filing date to audit a return for good faith errors, six years to challenge a return if it estimates you underreported your income, and eternity 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 curriculum vitae, employment contracts and related 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.
• Personal Papers — Create a file for each family member. Keep documents such as birth certificates, baptismal and confirmation records, Social Security cards, diplomas and professional licenses, wedding licenses and military discharge papers.

Finally, start small. Whether you currently have a system you’d like to reorganize or a cardboard box filled with bits of paper, choose file names and begin sorting the records for the current year. The most difficult part of any project is getting started.

©2008 HTG Investment Advisors for SeniorWomen.com