During the time between tax filing and spring cleaning, Wealth Advisors are often asked, “Do I need to keep this?” by cautious clients who are eager to declutter. Even with the proliferation of electronic delivery, we are still inundated with paper—junk mail, bills, receipts, statements and notices.
When it comes to decluttering, financial and legal documents are among the most important pieces of paperwork to differentiate between what needs to be filed away and what can be safely discarded in a secure manner, such as by shredding. Keep in mind that seniors are frequent targets of identity theft and other types of scams. While cybercrime has increased, thieves are not above old-fashioned “dumpster diving” to acquire paper records and use them for nefarious purposes. For example, a thief may retrieve a medical bill from the garbage and pose as the medical office requesting additional payments. They may reach out by phone or even email.
How to handle account statements and transaction confirmations
It’s likely that you receive account statements and trade confirmations by paper, electronic delivery or perhaps a combination of the two on a monthly or quarterly basis.
Prior to 2011, most brokers reported account cost basis as a courtesy. Investors were required to keep detailed records of their purchases and sales, sometimes for decades, during which time companies may have split, merged or been spun off.1 Congress created the concept of “covered” and “noncovered” securities beginning in 2011, and brokers were legally required to begin tracking and reporting cost basis.2 As a result, you likely don’t need to keep account statements and transaction confirmations for more than a year unless they pertain to pre-2011 noncovered securities that your custodian is not tracking for you.
However, you may still wish to keep your year-end statements to monitor the value of your accounts and financial progress over the years. Your bank and account custodians should have electronic copies of statements available to download even if you opt for paper delivery, and electronic statements can cut down considerably on paper clutter. I usually recommend electing for paper delivery of tax documents to save paper and printer toner. Typically, however, you may also download electronic copies of 1099s online for the fastest access.
How to handle insurance documents
We believe it’s important to keep a record of all insurance documents for policies and products while they are active. This includes copies of insurance policies for health, life, long-term care and property and casualty insurance.
Health insurance tends to generate considerable paperwork, including the Explanation of Benefits related to your claims. The Federal Trade Commission recommends holding on to medical bills for one year before shredding them unless there is an unresolved dispute.3
If you have a health savings account (HSA) and don’t itemize your medical deductions, we recommend keeping a copy of unreimbursed medical expenses. Typically, you can invest your HSA account on a tax-free basis and reimburse yourself, either for future medical expenses or for unreimbursed expenses that you have kept a record of, provided that you did not previously deduct them.4
How to handle bills and receipts
Generally, we don’t believe you need to keep a copy of monthly bills and other receipts once they’re paid. You may want to hold on to bills until you see that your account has been credited. The main exceptions to this are receipts that are tax-related, such as charitable giving, or items that have a warranty, which would require you to provide proof of purchase to file a claim.
How to handle tax returns and supporting documentation
Some say that tax returns fall into the “keep forever” category of financial records. The Internal Revenue Service has three to seven years to audit a tax return, so it’s recommended that you keep all tax-related documentation, tax forms and receipts for at least seven to 10 years.5
Home improvements are one of the more common tax-related items that can require long-term recordkeeping. When you sell your home, your cost basis includes the initial purchase amount plus capital improvements that increase your basis.6 Common examples of improvements include additions, heating and cooling systems, retaining walls, siding and kitchen and bathroom renovations. Regular repairs and maintenance that keep your home in good condition but don’t add to its value are generally not considered capital improvements.7
How to handle legal documents
Like tax returns, legal documents may also fall into the “keep forever” category and, when in paper form, should be kept in a secure and fireproof location. Important legal documents include Social Security cards, marriage and death certificates, passports, deeds and titles and estate documents such as wills, powers of attorney and trusts. Safe deposit boxes and fireproof safes are often used to protect legal documents and valuables.
These are some of the most important financial documents you should be mindful of retaining. Otherwise, most other paperwork, such as credit card offers, bills, receipts and statements, can and should be safely discarded at least annually. When in doubt, we suggest that you err on the side of caution and hold on to your files longer. We encourage you to reach out to your Corient Wealth Advisor for any questions you may have about recordkeeping.
1 https://www.finra.org/investors/insights/cost-basis-and-your-taxes
2 https://www.finra.org/investors/insights/cost-basis-and-your-taxes
3 https://consumer.ftc.gov/consumer-alerts/2015/05/pack-rats-guide-shredding
4 https://www.investopedia.com/terms/h/hsa.asp
5 consumer.ftc.gov/sites/default/files/articles/pdf/0527_shredding-infographic.pdf
6 https://www.irs.gov/pub/irs-pdf/p523.pdf
7 https://www.investopedia.com/terms/c/capitalimprovement.asp
