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Retention Requirement
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Recommendation
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Tax Records
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3 years min.
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7 – 10 years
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Bank/Credit Card Statements
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None
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File with tax records
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Deposit Slips/ATM receipts
Credit Card Transactions
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None
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Reconcile with statement then destroy
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Pay Stubs
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Most recent
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File year end with tax records
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Medical Records
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None
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Current physicians, treatments, and mediations. File medical expenses with tax records
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Insurance Policies
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None
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Inforce polices. Maintain list of insurance policies and servicing agent.
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Retirement Investment Accounts
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None
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Year end statement
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Non-Retirement Investment Accounts
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Cost basis
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Year end statements for 7 – 10 years after investment is sold.
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Tax Records – Generally the IRS has three years (from the date you filed) to audit your taxes. However, substantial omission of items (generally defined as over/under reporting income by 25%) extends the audit window to six years and there are situations such as filing a false return, willful attempt to avoid taxes, or failure to file a return which may be examined by the IRS at any time without limitation. If you are audited, the IRS can provide a copy of the return(s) you filed, but you need to provide the documentation and information that was used to prepare the return. Many sources recommend destroying tax information after seven years. That is plenty of time to defend yourself in an extended six year audit window. Frankly, you know if you should be concerned about an indefinite tax examination or not. I tend to hold tax documents longer that the standard seven year recommendation. I keep all tax records for ten years. For example, when I filed my 2010 taxes I destroyed my records from the 2000 tax year.
Bank/Credit Card Statements –These are essentially tax records. File them, by tax year, with tax records. Like all tax documents, keep them for ten years and then destroy them.
Deposit Slips/ATM Receipts/Credit Card Transactions – Save these only until the appropriate statement is received and reconciled. Once you know the statement is correct, it is okay to destroy these.
Pay Stubs – As long as your pay stub contains year-to-date information, you only need to retain your most recent pay stub. Keep the last pay stub of the year with your tax records.
Medical Records – It is a very good idea to keep records with the names and addresses of your family's personal physicians, medical history, and current prescriptions/treatments. Having this information at your fingertips will save you time and energy when you need to see a new doctor or have some other reason to summarize your health such as when purchasing insurance or, in some cases, getting a new job. Receipts and records for expenses related to healthcare should be retained with your tax records if you itemize and deduct your medical expenses.
Insurance Policies – Insurance policies are important, but replaceable. More important that keeping the actual policies is to keep the names and contact information for the agent who services your insurance. If need be, the agent can always get a replacement policy for you. But in a time of crisis, your agent should also be the first person you contact to initiate a claim.
Investment Accounts – what you need to keep really depends on the type of investment account
Retirement Accounts (including IRA's, Roth's, 401(k)'s, Pensions etc) – In general, these accounts are tax deferred so they are fully taxable when money is distributed. Throughout the year, you should retain all confirmations and statements. The final statement of the year will usually summarize all of the activity in the account for the year. You should keep this year end summary with your tax records. Roth accounts have a little greater need for recordkeeping. For Roth's, make sure you keep all your year end statements.
Non-Retirement Accounts – In order to calculate the taxes due when an investment is sold, you need to be able to document your cost basis (that is, how much you have paid in to the investment). If you purchased an investment in one "buy order" that can be pretty simple. But if you are making periodic investments over a long period of time, calculating cost basis may be a bit more difficult. Especially since the IRS allows for a couple different methods of keeping and tracking cost basis and there are special rules which apply to some investments like zero coupon bonds. The good news is, you don't really need to worry about it. Worrying about cost basis is your accountants' job. But you do need to provide your account the information they need. Just like retirement accounts, you need to keep a year end of summary of all your activity in your investment accounts. The difference is that you need to keep this information for as long as you own the investment… even if you own the same investment for decades. You should not consider destroying investment year end summaries for at least seven to ten years AFTER YOU SELL the investment. (By the way, new rules for investment companies will make this easier for investors. Soon investment companies will be required to track cost basis on your behalf).
When cleaning out files (especially after the years end), there can be a lot of documents which no longer need to be kept. Remember that DV Financial has a document shredding procedure which is compliant to military standards. As a service to you, you may bring in your documents and put them in our secure and confidential destruction bin. Your documents will be destroyed at no charge.
Have I missed anything? Let me know!
Is there a financial topic you have a question about? Or is there something you have always wanted to know but were afraid to ask? This is your opportunity! Send me an email and ask your question. I will publish the answer here at the blog and promise to keep your identity confidential. No cost. No obligation. No strings attached.
What Financial Advisors Think
Brinker Capital conducted a survey in June to gauge financial advisor confidence and sentiment about the economy, retirement savings, investing, and market performance. 380 advisors responded and some of the responses are quite interesting.
What should be the priorities of the next administration and new Congress during the first hundred days?
Almost 1 of 2 financial advisors feel that energy is the highest priority issue while less than 1.5 in 10 believe Iraq should be the top priority.
When do you think the U.S. Economy will rebound?
The good news – 84% believe the rebound will happen before 2010. The bad news – most believe there are 6 to 9 more months to wait.
What are the major obstacles to your clients' retirement savings?
Keep in mind that this is financial advisors perceptions about their clients' retirements. I wonder if clients see it the same way. Interestingly, back in May of 2007 I wrote about the common causes of financial failure and two of my four reasons are in the top three listed here.
Of course you always have to consider the source. Not surprisingly, 77% believe John McCain is more likely to solve the energy crisis than Barack Obama (do you think most financial advisors lean a little to the right?) and 65% believe that raising the capital gains tax would have the most adverse effect on the economy (the runner up was 15% believe that repealing the Bush estate tax cuts would be the most adverse).
Posted by Art Dinkin on August 01, 2008 in Commentary, Lists and More, Retirement, Taxes | Permalink | Comments (0) | TrackBack (0)