Still Financial Clutter in the Digital Age
I found a good and rather timely article in USA TODAY from The Arizona Republic about what to do with some of the dated financial documents that a lot of folks hold on to. It also has some good tips about how to store electronic data.
One good thing about income-tax season is that it forces most of us to deal with financial clutter at least once a year.
Brokerage-account records, paystubs, bank-account statements, credit reports and other documents can multiply like mushrooms in drawers and file cabinets if not occasionally trimmed back. Computerization and online records have helped in some ways, but they make things more complex and riskier in other respects.
One of the first questions people ask this time of year is: How long should income-tax returns and supporting documents be retained from prior years? The basic answer is to keep returns and all receipts and statements for at least the past three years. But things get muddled because the Internal Revenue Service can go back six years if if thinks you substantially under-reported income and indefinitely if it suspects fraud. Meanwhile, you don't want to discard important records pertaining to stocks, real estate or other assets that you continue to hold.
"We tell people to keep records indefinitely on assets that you still own," said David Baldwin, a certified public accountant in Phoenix. "When you sell, keep the records for another three years."
One blessing of the computer age is that you can retrieve missing tax and financial records easily and often for free by going online. For past bank, credit-card and brokerage statements, check the website of the company that holds the account.
You don't need to keep hard copies of all receipts and statements. The annual summary for your brokerage, credit-card or bank accounts likely will show transactions throughout the year. Once you have the yearly statement, you can toss — or, rather, shred — all those monthly or quarterly updates.
The Internal Revenue Service retains a lot of tax-related material, which can be accessed through irs.gov, using the "get transcript online" service. You can retrieve various types of information.
For example, you can obtain "tax-return transcripts" or summaries for recent years showing most line items of your return with accompanying forms and schedules, as originally filed. "Tax-account transcripts" show other information, including adjustments made after a return was filed. "Wage and income transcripts" are records of your W-2s, 1099s and 1098s. For photocopies of actual past-year returns, complete Form 4506 and mail it to the IRS. If you hired a professional return preparer, they also might have prior-year copies.
Banks and credit-card firms let you pay bills online and sign up for alerts that track transactions, signal low-account balances and more. These electronic tools can eliminate a lot of paper and allow you to run your affairs more efficiently. But online accounts also require you to keep track of a lot of user names and passwords, and you still need hard copies of certain financial documents.
Adam Levin, New York-based chairman of both credit.com and Identity Theft 911, said it's wise to transfer financial records you want to keep long-term to a flash drive, for storage in a secure location like a home safe. He doesn't recommend keeping sensitive files on personal computers because "your computer invariably will be hacked at some point."
Storing sensitive documents on smartphones is even worse, he said, because these devices are frequently lost or stolen.
When dealing with financial websites in general, it's important to get into smart password habits. "Passwords really do need to be long, strong, not easily decipherable and not shared among sites," Levin said.
Americans now can receive a free credit report once a year through annualcreditreport.com. In reality, this means you can get three reports — one each from Equifax, Experian and TransUnion, the three main credit-reporting agencies.
Credit reports can be viewed entirely online. If you prefer to print one to read at leisure, the documents should be shredded when you're finished checking them over, Levin said. Credit reports are full of Social Security numbers, loan details and other sensitive information.
Speaking of user names and passwords, secrecy is important but so is access. You might consider compiling backup lists of account details that a spouse or relatives or friends can access in a pinch.
Otherwise, if you died suddenly or lost the ability to manage your affairs, your online accounts could become inaccessible. One suggestion: Give give a list of your user names to one trusted relative or friend and a separate list of passwords to someone else, with instructions to compare notes if the need arises.
Just be aware that the user agreements for various websites might prohibit someone else from accessing your files, even with your permission, so it pays to read the fine print first.
Taking a financial inventory
It's smart to make a list of financial records every now and then, including digital information such as user names, passwords, contact information and recent statements. This makes sense not just from an organizational standpoint but in terms of measuring your net worth and financial picture over time. Should you ever need to evacuate your home because of flooding, a fire or other hazards, it would be helpful to have your key information in a handy but secure location.
Plan ahead for what types of accounts or other contact information you might need to grab in a pinch, including information for doctors, insurance contacts and veterinarians. It can take time to distill your life to a list of essentials, but that's part of the exercise.