Your financial files could benefit from 'extreme makeover'
By Sandra Block
USA Today
Most people spend more time organizing their iPods than their financial records, and that's unfortunate. With identity theft on the rise, it's more important than ever to keep track of your personal financial information.
Whether you're storing documents on paper or electronically, it helps to designate folders for several categories of documents. John Sestina, a Columbus, Ohio, financial planner, typically puts his clients' documents into the following categories: Notes. Notes from meetings with your financial adviser, attorney or your accountant. File them chronologically, with the most recent at the top. Personal information. Passport, birth certificate, driver's license. Income. Tax returns, budget information. Net worth. Non-investment documents, such as titles to your car and home mortgage. Investments. Brokerage statements, trade confirmations. Business interests. If you have self-employment income from a side business, use this file for contracts and other self-employment information. Insurance. Life, health, disability and auto policies. Estate planning. Copies of your will, power of attorney, healthcare proxy, living will and other estate-planning information.
So maybe it's time for a new reality series: "Extreme Financial Records Makeover." An army of financial planners and accountants, armed with file folders and a giant shredder, would descend on a household and organize the family's file cabinets.
ORGANIZING YOUR RECORDS
"Extreme Financial Records Makeover" probably wouldn't attract as many viewers as "Wife Swap," but it would have no shortage of eager contestants. In households across the country, drawers and file cabinets are overflowing with investment statements, bills, insurance policies and old warranties.
Worse, many families keep all this stuff "in a location that's not safe or private," says Nathan Mersereau, a financial planner at Oakland Wealth Management in Southfield, Mich. And when it comes time to locate important financial information, it's impossible to find.
You can conquer the mountain of paper if you understand what you need to keep and what you can safely shred. Some guidelines:
• Tax returns. The IRS has three years to challenge information in your return and six years to conduct an audit based on unreported income, Mersereau says. So a good general rule is to keep your tax returns and supporting records, such as W-2s and 1099s from financial institutions, for at least seven years.
• Investment statements for taxable accounts. Most brokerage firms and mutual fund companies send annual statements summarizing the year's transactions. Once you receive one of these, you can shred your monthly and quarterly statements.
Keep records of the price paid for stocks and mutual funds. You'll need them to figure out how much you owe in taxes when you sell. Keep trade confirmations for up to seven years after you file a tax return showing a gain or loss from selling a security, Mersereau recommends.
• Retirement plan contributions. Keep records of contributions to nondeductible individual retirement accounts, such as a Roth IRA, indefinitely. You'll need these to prove you've paid taxes.
• Bank statements. Keep statements that back up information on your tax returns for up to seven years.
• Credit card statements. Hold on to statements for big purchases, such as jewelry or large appliances. You may need them to file an insurance claim or a warranty. If you put charitable contributions on your credit card, keep the statement for your tax records.
• Insurance policies, wills and other legal documents. These documents should be kept indefinitely.
