Ep. 275 – What Documents Should I Keep on File in Retirement?

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In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the crucial documents you need to keep on file as you approach or enter retirement. It’s not uncommon to feel overwhelmed by the amount of paperwork accumulated over the years, especially when it comes to tax returns, legal documents, and health care records. This episode offers valuable insights on how to manage your important documents effectively to ensure peace of mind during retirement.

Listen in to learn about the best practices for storing and organizing tax documents, health care records, legal papers, and other essential files. Radon and Murs also touch on the importance of digital storage solutions and how they can help you save space while keeping your documents secure. Whether you’re concerned about potential audits, inheritance rules, or just want to make sure your legal documents are in order, this episode provides practical advice that every retiree should consider.

In this episode, find out:

·      How long you should keep different types of tax documents and what to keep on file.

·      The importance of maintaining accurate health care records, especially for HSA accounts.

·      Key legal documents that you should store securely and ensure others know how to access.

·      The significance of asset and debt-related documentation, including real estate and retirement accounts.

·      The advantages of using digital storage solutions to manage and protect your essential documents.

Tweetable Quotes:

·      “Keeping your documents organized isn’t just about decluttering—it’s about ensuring you’re prepared for any situation, from audits to emergencies.” – Radon Stancil

·      “Having digital copies of your important documents can save you both space and stress, especially in retirement.” – Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil:

Welcome to Secure Your Retirement Podcast. We are talking today on a topic that we think is important because obviously when we need documents, these documents, we want to make sure that we know exactly where they are. And really the theme of what we’re talking about today is what documents do I need to keep on file? And a lot of times in these conversations, especially with certain things, every year now, we actually do a thing with our clients where we have a shred event. And in that shred event we’re saying, “Bring all the documents that you don’t need anymore and let’s get rid of them so you don’t have all these documents in the house.”

And many times people will say, “Yeah. Well, I’ve got these documents. I’ve had them for 25 years. How many years of whatever do I need to keep?” And so that becomes the question. And so becomes this nervous thing about getting rid of all these old documents, but yet when people do get rid of those old documents, they love it because now they got a clean attic or clean closet or clean basement wherever they keep those documents. And so today we want to talk through a couple of different types of documents and then what you should need to keep and how you should keep it and all that kind of a thing.

So we’re going to start off here and the first topic that we’re going to talk about, the one that people are probably the most concerned about, and that’s tax documents. So, Murs, could you walk us through this idea of what different types of tax documents and then how long we should keep?

Murs Tariq:

Yeah. I think that’s the most common question is how long should I keep my tax return on file? And you can get different answers here. I think a good rule of thumb is keeping those documents on file for about three years. If you’re concerned about an audit for whatever reason, maybe keep it on file for up to seven years is what people tell you to do. But for most people in simple tax returns, three years is going to be good enough. Now, what is the document that you need to keep on file? It’s going to be all the supporting things that come with the ability to file.

So where’d you get your income from? So that’s usually your W2’s, your 1099s, maybe some interest statements from your banks or your investment accounts and any other things are going to support the claims that you made on your tax return. So deductions that you took. If you didn’t use a standard deduction and you went into itemization, you got to be able to support your itemization. So medical receipts, all those different things. I grew up in a world where my dad had a massive file for every single year of his tax return, so he’s very meticulous that way.

I don’t think everyone needs to be that way, but it’s good to have supporting documentation for a few years going back just to make sure that if there was a question or if there was even a need. Quite often we’ll find reasons that… There’s a reason to go back and open… We sit here in 2024, there’s a reason to open that 2021 file to refile that tax return because maybe something was missed. And if you have the documents, it makes it a lot easier rather than having to go track them down.

So it’s always good to keep about three years worth there. Another thing on taxes would be if you made any taxable gifts or received inheritance, it’s always good to keep a record of that. One thing in particular on the inheritance is the IRA inheritance rules changed a few years ago where it used to be you could stretch your inheritance distributions over your lifetime, so there wasn’t much that you needed to track. You just needed to take a distribution every single year.

Back in 2020, it changed to where you have to take it over 10 years for most people. So keeping that inheritance record on file as far as when you inherited gives you that start clock as far as when your 10 years is up. So things like that. If you made taxable gifts or any type of gifts, you want to be able to support that because there is limitations on gifts. It’s a very large, large number that won’t apply to most people, but you want to be able to support the gifts that you give out as well. That’s really it when it comes to tax documents, just keeping those on file. Anything else there, Radon?

Radon Stancil:

No. I was just going to say, I know you’re saying on file there is not a reason to keep the paper document. If you use a storage, there’s lots of different document storages that you can use now that are online and they are very safe. We use one called Box. There’s also Dropbox. There’s also one that my brain is not coming up that Microsoft has. Do you remember what that one’s called, Murs?

Murs Tariq:

Right. That’s their cloud something. I can’t remember.

Radon Stancil:

A lot of these are really safe. They’re password protected. They have different security features. If you’re comfortable with that, that obviously is going to save you a lot of space. All right. Let’s move on to our next category outside of tax documents. Now, let’s talk about healthcare documents. One that I think is really important is that if you have an HSA. I have an HSA. The way an HSA works is I can put money over into an account and I can put it in their tax-deferred.

I can then let the money grow in a tax-deferred status and then if I need to pay medical bills, I can actually take the money out of there, pay those medical bills and I never had to pay tax on any of that. Now, I’m only supposed to use that money for medical things. Now that could be a lot of different things and we’re not going to go down all the path of what’s medical not and all that, but you can do the research.

Here’s the key. Anything that I do spend the money on, it would be a good practice for me to keep those receipts. Why? Well, I don’t know if I were to buy something, especially if I bought something that was a larger price point, whether that had be… If I were in a scenario where I had to buy a medical device for example, that could have been expensive, I need to prove that I actually spent this money on a medical thing if I were ever audited.

So keep those receipts and that would be an ongoing. Just keep a file. To me, there’s no timeline on that one. You want to keep those on the file so that you have ability to show that. If you are going to write off any medical expenses on your tax return, you want to keep those generally for three years. So this is different than the HSA. Let’s say that I do something where I qualify to deduct or write off those medical expenses, then I want to make sure I keep that along with that three years on there.

A whole different topic is Medicare. With Medicare, I want to keep my what’s called medical or a Medicare summary notice at least for one year or until the bill is paid off. So if I am owing some money, I want to keep that in play. What about our notice of credible coverage? That means if I was trying to go from my employer or another medical plan over to Medicare, there’s some rules there, but for being able to qualify for Part D or prescription coverage under Medicare.

So I need to keep that document at least until I’m enrolled so that I can prove that I had credible coverage. Anything there, Murs, that you see that I missed? Anything at all?

Murs Tariq:

No, I don’t think so. I think the HSA one is rather powerful. I’ve heard all kinds of stories and strategies around HSAs where you could keep all your medical receipts on file and then way down the road, way down the road, as long as you have the receipts, you could in all essence expense those receipts out of the HSA when it made more sense. So having the receipts makes that possible. So the HSA is a very powerful tool. We’ve done separate podcasts on the HSA and people talk about how it’s got triple tax benefits, but you got to have the receipts to prove those withdrawals.

The next outside of tax and healthcare, we go into legal documents. There’s quite a few there that you want to be able to have access to and know where they are and maybe even have other people have access to. If you’re a US citizen, knowing where your social security card is and birth certificate and passport, especially if you travel, passport is going to be very important. And also having digital copies of those as well. Just for those emergencies. Anytime you travel outside the US, they always tell you now, of course you got to have the physical passport with you, but they tell you to have a digital version of it or a picture of it in case of emergency. So having that somewhere readily available is always good.

The estate plan. We talk about the estate plan all the time. Typically, that’s a will, power OF attorney that involves durable financial healthcare, maybe even HIPAA authorizations, sometimes even a trust. Those are all estate planning documents. We think it’s good practice to have that in your safe as well as a digital version that’s in your email or like a cloud storage device like a box or a drop box that you have easy access to.

Also, you want to have someone else that has access to it as well in the event that they need to use those documents. Could be your financial advisor. A very big practice that we have here is that we like to have those documents on file when those events do happen. And maybe it could be your executor or someone that you do trust that has access to those documents as well. If you’re married, the marriage certificate is always good to have on file, especially if there was a name change and proof of that name change is usually important, especially if you’re getting loans or anything like that.

If there’s a prenuptial agreement, those are more common today than they were 20 years ago that you got to be able to prove what that agreement was. So having that on file or available is something that you want to have access to. If you’ve been divorced, the divorce agreements and the paperwork around that, or for proof, or just questions is always something that is good to have readily available and saved in a safe place. If you’ve served in military, having those discharge papers is going to come in handy.

Radon, I think you had a story around your dad, but when it comes to qualifying for certain medical and veterans benefits and sometimes it’s really the child or the beneficiary that’s trying to help their person that did serve in the military get whatever veterans benefits they’re trying to get. It’s easier if they know where to get those documents. And then if you have a safe deposit box, a lot of times people don’t know that they have it or their spouse doesn’t know or their kids don’t know that they had one and they don’t know what’s in it, right?

So making it in a place that when the time comes there’s access to it, knowing where to get it, where the key is and how to access it is always going to be helpful as well.

Radon Stancil:

All right. Well, let’s move on to the next one here. Asset and debt related documents. So on this one it really today is a lot easier, I think. So for example, we want to keep all of our statements. Now, you can keep a paper copy. We still have some clients who like to paper copy, but that to me is a lot of paper. For example, we use Charles Schwab. All of your statements, all your tax documents, they’re going to stay on there for a number of years and so that really is good. You want to keep your end of year statement.

The last one there just shows the end of your balance until you file your tax return. This is really not cumbersome anymore because you have your statements right there on the website. Couple things though that we want to think about here in relation to what’s called cost basis.

In 2012, custodians started having to be required to actually track and keep your cost basis, which is super nice because prior to that it was your responsibility to say what is your cost basis? When did I buy it? What was the stock worth when I bought it? And so what we want to do is try to keep that record once we identify it. And we’ve had to help clients do that before where we go back and do the research. Because you can imagine if somebody bought a stock in the ’80s and then they bought a little bit more of it and later each year. I mean, we’re having to go find cost basis throughout that, whereas if they’d have had that documentation, it would’ve been super nice because they would’ve known exactly what their cost basis is.

And now that, you want to keep that cost basis until you sell that stock and file that return. And then I would say that’s one of those things too you might want to just continue to hold because if you ever did get audited after the three-year lookback that they have, you want to make sure that you can prove it. Anything else on that, Murs, on that particular one?

Murs Tariq:

No, I don’t think so. The cost basis thing, what is nice about a lot of institutions today is they realize it’s difficult to keep up with that paperwork of what you originally bought that stock back in the ’70s and ’80s, for. So they actually allow for you now to input your cost basis into their software. So at Schwab, as soon as we get that document and we know what you originally bought it for, we’re able to put into their system and then it tracks it going forward for you. But not all custodians do that, but it is a nice thing, but rather important because if you sell something and you don’t know what you bought it for, it can create some issues.

On another topic, assets that you own and debt related things. So a lot of us own property and automobiles, right? Owning the deeds, the titles, any settlement statements, bill of sale, things like that, keeping that on file for tax purposes as well as just to prove that you actually own the property is always good. If you sell the car, you typically need the title available to transfer that over to someone. And if you’re self-employed and you have a home office, this one is a tricky one when it comes to filing tax returns.

If you claim that you have a home office, you got to be able to prove that it’s actually used for home office use and the expenses around that. So keeping good records and receipts around that is going to be important like utility bills, mortgage statements, and anything that you use when you’re deducting things as a home office.

If you made improvements to a house. This one you don’t really think about until it’s almost too late. So let’s say I bought a house for, in this area, 500,000 is a pretty standard house in this area these days, and then I put on a third garage and then I replaced the roof. So I put money into the house and I sell it down the road for a million, a million-two, something like that. Well, there’s capital gains involved in that sale, so you want to be able to prove that you did improvements to it so you can change what your cost basis is.

I bought it for 500, but I also put in another a hundred thousand into the house. So now my basis is 600,000, which is going to affect what your capital gains are, but you got to be able to prove it with receipts and good documentation. If you own real estate in multiple states, it’s good to know how often you’re there. In different states, there are rules around claiming a primary house and also around taxation when you sell. So being able to prove where you lived and how often you’re there, how often you travel to it is going to be important too. So keeping that documentation.

The only other thing that is on our list is going to be outside of that is going to be your insurance policies. So understanding what insurances you have when it comes to life insurance, whether it’s term or permanent types of policies, understanding the benefits there. A lot of life insurance also has access to long-term care and you want to be able to realize what type of value you have in those. And cash value as well.

Homeowners. Knowing what you’re covered for, if you’re covered enough. Do you need to upgrade your coverage? And if there is a situation like a storm or a hurricane, or a tornado, if you’re covered in that scenario, car insurance and anything around that. Another one that comes up quite often is, I’ve got long-term care coverage, but I really just don’t know what it means. Well, those documents, those policies are going to help you and maybe the advisor that you work with sort through, “Well, what type of coverage do you actually have? Do you need more or do you need less?” Anything else to add there, Radon?

Radon Stancil:

The one that I actually overlooked was on the retirement accounts. So if you have something like an IRA in particular or something that’s tax deferred. As far as the documentation that you would want to keep for contributions and withdrawals, it’s called Form 5498. If you do a Roth conversion, keep the records about that Roth conversion because that’s something that you need to make sure you have on hand. And if you made any non-deductible traditional IRA contributions, you want to keep the Form 8606. Again, these are documents just so that if you get questioned on that, you know all of those numbers.

And again, this is a lot easier if I keep it electronically. I know for me, I’ve got all my stuff and I do have it a lot longer than you need to, but it’s all electronically stored, so it’s not cumbersome to me and I don’t have to worry about it. If I need to go back and look, I think I’ve got going back to around 08 somewhere in there, all electronically filed. So it just is easy. I can go back and look at those documents if I need to.

But anyway, we hope this has been beneficial. If you’re listening to this and you think, “Man, I want to make sure I’ve got all this real clear in my head.” We do have a checklist that we can give you. It’s an electronic form of a checklist that you can just walk through all those things that Murs and I just went through. If you’d like that, just reach out to the office. You can give us a call or shoot an email over to us. Go to our website. All that information is there, which is pomwealth.net, and we’d be glad to send you over this document so you can make sure you have your own checklist.

We hope this has been helpful. If you ever need to talk to us, you can go to our website, go to the top right-hand corner, click on schedule call, and we’d be glad to kind of go through anything that you might want to discuss in connection with any of the topics that we talk about here on the podcast. We hope you have a great week.