You might be surprised at how many people have financial documents scattered all over the house — on the kitchen counter, in the hall closet, a drawer, or a box in the basement. If this describes your "system", you'll have a tough time keeping tabs on your financial life.
Take an hour or two to get your papers in order. Organization will help you, your advisors, and even your heirs.
A home safe or a file cabinet will work. Or you could use storage boxes. Here's what should go inside:
* Investment statements. Organize them by type: IRA statements, 401(k) and mutual fund statements. Annual statements are the ones that really count. Keep 8606s that report nondeductible contributions to traditional IRAs, your Form 5498s, (Fair Market Value Info sent each May), and your 1099-Rs, which report IRA income.
* Be sure to save records of your original investment in a fund or stock, which determines capital gains or losses.
* Bank Statements. Keep the last three years' worth on file. If you anticipate a lawsuit, divorce, or debts, it's wise to keep them longer.
* Credit card statements are less necessary, but keep any detailing tax-related purchases (like a new roof) for up to seven years.
* Mortgage documents, and a home equity line of credit (HELOC) statements should be kept for as long as you own the property, plus seven years after sale, due to tax and ownership disputes.
* Hang onto them until the period of limitations runs out, during which you can claim a credit or refund. The standard IRS audit looks at your past three years of federal tax records and possibly up to seven years. Tax records pertaining to real property or assets should be kept for as long as you own them and for seven years after you sell, exchange or liquidate them.
* Insurance. Life, disability, health, auto, home: keep each policy and policy information on hand for the life of the policy plus three years.
* Medical records and health insurance. Keep documents for five years after the surgery or treatment.