Prime Time Money

It’s summer and we’ll be travelling a ton soon. My wife is off for the summer since she’s a teacher, and my job usually requires that I travel internationally during the summer months. Therefore, we’re taking time to do a little “late” spring cleaning. When cleaning out our financial records, here’s what we plan to keep:

• All our tax records. The standard here is seven years because of the IRS’ right to audit you six years after filing if under reporting is suspected. We plan to keep all our records right now as we haven’t accumulated more than seven years of tax returns yet. Actually, I think I’m right at this mark, but I just don’t think it’s worth it at this point to trash the pre-2000 year.

• All our investment records. We don’t have any of these of any consequence, but we’d keep ‘em for seven years if we did. The important thing to remember here is to focus in on purchase (cost basis) records, as to prove the amount of your gain or loss when you sell.

• All our retirement account records forever. You are required by the IRS to keep copies of all the tax forms related to your IRA until all the money is withdrawn. We’ve already made some non-deductible contributions to an IRA account and we must keep a record of this to avoid paying this tax in the future.

• Home improvement records until we sell the house, and then seven years. We just made a purchase on flooring improvements for our home, and will keep a record of these purchases. However, this rule is all about offsetting gains on $500k sales price of your home. I don’t think we’ll be touching that mark with this home, so this rule doesn’t really apply to us. We’ll keep the records anyway, at least to show the future buyer.

• Bank and cash management accounts for seven years. Because these reinforce our tax records, we plan to keep these for seven years as well. Again though, none to throw out at this point.

• Personal bills until we have proof of payment. Only keep these records past payment if it’s the final bill, or if related to a business use of a home office for tax purposes.

These suggestions came from an article written by Rick Sauder, in Stages, Fidelity’s Investment Magazine.