PCS Season: Organize Your Financial Life

 

Whether you’re motivated by an upcoming PCS or it’s simply time for a little desk drawer cleaning, the occasional purge of unwanted household items can feel like a fresh start. When you’re done cleaning out the closets, remember that same sense of accomplishment can be had when it’s time to tidy up your financial documents.  

If you’re setting out to “Marie Kondo” the piles of financial paperwork in your file cabinet and all that snail mail stacking up on your kitchen counter, the classic KonMari question – “does this bring me joy?” — won’t necessarily apply to your financial and tax paperwork.  (Even as a financial planner, taxes never bring me joy.)  

Do I really need 10 years’ worth of utility bills? 

By following a few simple rules, you can tackle the piles of paper and send your financial documents off to the shredder with a little gratitude.

Keep forever. Important life documents, especially those that are difficult to replace, should be kept in a “forever” file, preferably in a fire safe box or similarly protected.  

• Life documents: birth certificates, marriage certificates, death certificates, adoption papers, social security cards;
• Military service documents:  DD 214, VA disability certifications, and overseas deployment orders; 
• Education documents: diplomas, transcipts, certificates.

Keep “permanently.” Key financial and legal documents should be protected in a similar way to your forever documents, but these documents might need to be updated or replaced over time.  

• Estate planning documents: wills, powers of attorney, medical directives;
• Legal filings: trusts, inheritance, court orders, contracts, etc.
• Financial documents: mortgage/loan pay off documentation, life insurance documentation, etc.
• Investment documents: End of year statements serve as a historical record of all your contributions, distributions, and investment gains which could prove useful if you ever need to establish basis in an investment many years in the future.
• IRA Tax Form 5498: Your IRA trustee publishes this important documentation of your contributions, conversions and account balances each May;  
• Deeds & titles: deeds to property, titles of vehicles, certificates of authenticity, appraisals of artwork, antiques, jewelry, etc.
• Medical documents: your medical records, including your vaccination record.

For estate planning reasons, it’s helpful to keep all the “forever” and “permanently” documents in a safe place like a fire safe box.  It is also important to be sure your family members and potential executor know where and how to access them if necessary.  

“What about my tax documents?”

Keep At Least 7 years. The IRS can audit tax returns going back either 3 or 7 years, depending on their reason for the audit.  That makes at least seven years the better safe than sorry choice for tax related documents. 

• Tax returns including proof of your payment to the IRS and your state tax documents.
• Important tax documents like your W2, 1099’s, 1098’s, etc.
• Retirement contribution documents including your IRS Form 8606 if you have Traditional IRAs. 
• Supporting documents related to expenses written off including confirmation letters from charities you donated to, donation related credit card statements and canceled checks. This includes health care receipts if deducted on your tax return.
• Records for any business-related expenses including utilities, taxes, travel, purchases, etc.

Home ownership/rental properties: Documents related to the purchase, improvement or disposal of a home, property or business should be kept for at least seven years after the tax year during which you dispose of the property.  

This includes mortgage, title and tax documents, closing documents, loan pay off documents and any receipts for substantial improvements like additions or remodels that increase the value of the property.

Keep 1 year. Most monthly bills and bank/investment documents are accessible online, so there is little benefit to keeping them in paper form.  If you prefer to keep them in your physical file cabinet, you need only keep them for one year.  As mentioned earlier, end of year investment statements should be kept with your important documents.

Keep less than a year. Utility bills and credit card documents can be discarded once you’ve reviewed your bill for errors and paid the account.  You only need to keep these longer if you write them off as a business expense or otherwise take a tax deduction for them (see 7 years above). 

When in doubt, SHRED it!

Now that we know what to keep, let’s look at which documents need to be shredded instead of tossed in the garbage.  To protect your identity from the teams of fraudsters out there, you should shred any document with your social security number, account number, or any other combination of personally identifiable information including your name, address, date of birth or driver’s license details.  

Even “junk mail” contains an inordinate amount of PII; especially mail from banks and unsolicited credit card offers.  To help stem the flow of these annoying offers, the Federal Trade Commission provides several methods to “opt out” of specific types of junk mail and unsolicited offers.  

When in doubt, shred it.  You can either do this with a home shredder or take your pile of documents to a local commercial shredder.  Both the UPS Store and FedEx Store will shred your mountain of documents for a reasonable price, saving you the trouble of cleaning up the dusty mess yourself. You can also take advantage of free community and base wide shredding opportunities. 

An ounce of prevention … go paperless!

Now that you’ve tackled your collection of twenty-year-old canceled checks, it’s time to take this tidying up one step further – go paperless!  Your banks, lenders, and investment companies offer a wide variety of paperless record keeping options. Simply log into your account and subscribe to their paperless option.  At the end of the year, simply download copies of the important annual documents for your records.  Keeping important financial documents out of your mailbox is an important first step toward protecting your identity and simplifying your life. 

Happy sorting:)

Need help organizing your financial life.  The MFAA advisors can help and you can find them here.