Maintaning Order: Good Records Can Become a Valuable Asset

By Philip J. Beavers, CFP,
WEAC's Member Benefits Specialist

June 1998

Financial Planning Seminars
Achieving Financial Independence

Through my planning sessions with members I have found that many members may benefit from suggestions as to what records to keep, where to keep them, and how long to keep them. A well-organized record keeping system is a valuable asset. The efficiency that results from a good system could save time and money as well as lower your stress level.

Three record-keeping areas about which I consistently get questions are: investments, taxes, and wills.

Investments

Generally, you can toss out previous monthly statements from brokers, mutual funds, and other investments, after checking their accuracy with the most current statement.

All you need to keep is your year-end statements and the annual 1099’s for tax purposes.

With pre-tax investments, such as 403(b), IRAs, and 401(k) plans, keeping track of the cost basis is not important since when you begin receiving the money it is all treated as ordinary income.

With after-tax investments it is important to keep records on the cost of the investments and the amounts of invested dividends. Be sure to keep every trade confirmation and dividend re-investment statement so that you will be able to accurately determine the cost basis for tax purposes.

Taxes

The IRS has three years in which to raise routine questions about your tax returns, six years if it thinks you under-reported income, and can go back to “year one” if fraud is suspected. Therefore, the general advice is to keep your income tax returns and all supporting data for a minimum of six years.

You may want to keep all of your tax returns.

Wills

It is generally recommended that your will be kept in a safe place at home with copies in your safe deposit box and in the possession of your beneficiaries, executor, and/or your lawyer. Unless a safe deposit box is jointly held, it could be temporarily sealed by the bank or tax authorities upon an individual owner’s death.

Developing a system

Once your record system is in place, you will need only a few minutes a month or a couple of hours a year to update it. Be sure to develop a system which best suits your family’s individual needs. One system which seems to work well for many people involves using a current file, a dead storage file, and a safe deposit box, or at least a fireproof box in your home.

Your current file should contain a master list with information on the location of various records, including general information such as a list of assets and their locations, location of original documents, information about locks and keys, and the address and phone numbers of professional advisors. Your current records should all be in one place, easy to get to, and easy to use. When records are no longer current, demote them to a dead storage file, perhaps in a closet, basement, or attic. A safety deposit box should be used for important papers which would be difficult to duplicate.

Your current file should include the following: • Current year canceled checks or bank/credit card statements.

• Record of itemized deductions (interest, medical, etc.).
• Insurance policies.
• Record of outstanding loans.
• Medical records.
• Balance sheet or net worth statement.
• Receipts for major purchases.
• Tax returns for past three years.
• Warranties until they expire.
• Current household inventory.

Your dead storage would include the following:

• Past five years of bank/credit card statements.
• Past year’s record of itemized deductions.
• Previous six years of tax records.
• Past year’s investment records.

Almost everyone owns records and valuables which should be stored in a bank safe deposit box. The cost is nominal and may be deductible on your federal income tax. More importantly, a safe deposit box protects records against fire and theft.

The following should be in your safe deposit box:

• Personal records such as birth, marriage, death certificates, divorce and separation agreements, military discharge papers.
• Title papers to real estate and automobiles.
• Contracts and legal agreements.
• Stock and bond certificates.
• Inventory of personal belongings for insurance purposes, perhaps a video tape or photos of valuables.
• Jewelry, rare coins, stamps, family heirlooms.
• A list of insurance policies and their numbers.
• A copy of your will.

What to Toss

If you don’t need the record for tax purposes or if you are sure it can be easily be replaced, don’t save it.

Most of us squirrel away more paper than is necessary. Records that can be tossed also include credit card bills; monthly statements from your bank, broker, or mutual fund; most canceled checks and receipts for everyday purchases.

Posted June 12, 1998