Adulting is hard, whether 22 or 72.
It's hard to keep track of what the heck we are supposed to keep track of. I hope this guide will be a good reference for the most essential documents to store. You might use a physical filing system or an electronic storage system like Dropbox, but I suggest choosing one method and sticking to it.
Standard rule of thumb in business is to keep 7 years of tax records on file. Who has that kind of space? I suggest keeping 3 years of personal returns on file, unless you took a one-off deduction or forgot to report some income in a specific year; then keep more detailed records for those situations. It's also a good idea to keep any supporting documents with those 3 tax returns, like W-2 or 1099 forms.
If you use a CPA or other tax professional, they provide you with a copy each year, but you can always ask for an additional copy if you've "misplaced" your returns in a shredding or recycle bin. Or if you are like me, they might be in a stack somewhere and you don't have the energy to dig. No judgment here! The professionals you hire exist to make life easier.
If you use TurboTax or other tax software, you should be able to either rely on this as your storage system, or consider downloading your last three returns to store alongside all your other documents.
Lastly, did you make any sizable gifts to your parents, children, grandchildren, or needy friends? There's this thing called the Annual Gift Tax Exclusion that allows any person to give another person $15,000 per year (as of 2020, it adjusts over time). As long as your annual gifts to each person are under $15,000, you aren't required to file tax documentation and potentially pay gift tax. If you find yourself in a gift tax situation, there are additional tax forms you need to file and keep track of. There are some situational intricacies here, so check with your financial advisor or tax professional annually to see if there's anything you need to do.
As a bit of a hypochondriac myself, I'm no stranger to doctors. Transferring records is a pain, getting the right treatment for what ails you is a pain, so what exactly should you keep track of document-wise?
Do you have a Health Savings Account (HSA) through work? Some people like to use this as a savings vehicle for healthcare costs down the road, but if you use it, you should keep a record of all receipts you used these funds for. Not the most fun, but it beats having to track all of that down years later.
Do you hope to write off medical expenses on your tax return? Keep detailed records in years with major surgery or babies! It might help your tax bill.
65 or older? Are you on Medicare or plan to apply for Medicaid? You should keep your Medicare Summary Notices until your bill is paid in full. If you receive a “Notice of Creditable Coverage” from your employer, keep it. You will need it if you enroll in Part D at a later time. If you plan to apply for Medicaid, you'll need 5 years of financial statements and records to account for the 5-year look-back period.
Show me the money! The easiest way to keep track of bank accounts, brokerage accounts, and retirement accounts is to keep copies of year-end statements and any annual tax documents you receive. Keeping track of monthly or quarterly statements can mean a lot of paper adding up quickly.
Some one-off items to keep track of: If you had any investments prior to 2012, try to keep track of the cost basis for taxable accounts like brokerage accounts or trusts. Post 2012, custodians like Schwab and Fidelity are now required to keep records of this for you, but if you bought some stock in 2003 and want to sell it in 2023, you have to estimate the basis or take a 100% taxable gain on the sale. A tax pro can help you navigate this because let's be honest, who has records from 2003? Point is, if you happen to have some dusty files that show how much you paid for some stock in the 90s, don't toss them.
If you over-contributed to any retirement accounts, or did a Roth Conversion in any given year, it's best to keep documentation of this. If you are in retirement and have started withdrawing funds, or have taken a loan from your retirement accounts, keep records of this as well.
Do you own one home, or four? Are you a car junkie? Keep any deeds, titles, settlement statements, or bills of sale on file until you decide to sell any property you own. Please don't keep your car title in your car. Keep all of these records in a safe place that's easy to remember. You should also keep any insurance policies related to your assets, and update your files as you update the policies.
Did you use debt to finance your properties? Keep all records for mortgages, student loans, retirement account loans, personal loans, etc. until they are paid off, and even after they are paid off to be safe.
Have you made improvements to your one or four homes? KEEP the records. When you go to sell, these improvements can increase the cost basis of the property and save some taxes upon sale.
Do you know where your birth certificate is? You need to keep your birth certificate, your passport, and your social security card in a safe place. You'll need some additional documents like your Green Card if you are a foreign national.
Are you married and/or divorced? Keeping track of any prenuptial agreements, marriage certificates, and divorce settlements can make applying for loans or insurance a much faster process.
Do you have a will? This is just one of several estate planning documents we should all have in place. You should keep a copy of your Will, Trust(s), Powers of Attorney (General, Financial, and Health Care), Living Will, and beneficiary designations on file, and store the originals in a safe place. Also, consider giving copies to people that play an important role in your estate plan. This might be your financial advisor, your children, or perhaps most important, the executor of your estate. An estate planning attorney can help you create these documents, and walk you through the importance of different types of structures to keep your assets safe and make the transfer to your heirs as seamless as possible. As you look through all of these documents, please check the beneficiary designations on your retirement accounts, like your 401(k) or IRA(s). It's possible you forgot to add one when you started your job 20 years ago. or maybe you put your sister or your ex-husband. If you remarry and subsequently pass away, your ex will receive the retirement assets no question. A beneficiary designation is very difficult if not impossible to challenge, so check these annually and keep records!
Consider keeping your legal documents in a safe deposit box away from your home. Give the appropriate people access should something happen to you, but you generally won't need to use these documents regularly, so you can store them at your bank in a secure location.
THAT ABOUT COVERS IT
Did I mention adulting is hard? We are complicated humans, and everyone's situation is different, so this list might not be everything you need to keep track of. Do you own a business? There's more to keep track of if so. Do you use your home office as an income tax deduction? More to do there too. If you use this infrastructure as a starting point, I'd argue you are the majority of the way there, and the good news? You don't have to update all of this every year. More good news? A financial planner can help you with this, remind you to update when needed, and she can even store some of these records for you.
Go forth and gather!
I am not paid by any of the links I added here, they are merely for educational purposes.