Your taxes have just been filed and now it’s time for spring cleaning – clearing out the dirt and clutter in your homes and work space to allow for a chore-free summer. Why not also use this opportunity to “clean” up your finances? With a little annual clean-up and our three ideas, you can keep your current financial situation well-organized, streamlined and up-to-date.
Clear the document clutter
We are all human and sometimes accumulate piles of important documents and statements. Now is the time to look through your financial documents and consider which to keep and which to discard. Keep recurring documents, such as investment and bank statements, property and casualty insurance renewals or social security and retirement statements, for one year. You need only keep household bills and credit card statements until you have a record that the bill was paid (unless you need these statements as evidence for tax filing or proof of purchase). Shred all outdated and unnecessary statements.
Try organizing your saved documents into a folder with the newest date on top. This way, if you go looking for a specific document, you won’t shuffle through a year’s worth of back up. Maybe, you prefer storing everything digitally. If so, consider naming folders starting with the year, followed by the two-digit month and ending with the name of the institution or document. This keeps the files sorted in an easy, chronological order. Remember, all electronic files should be backed up regularly, whether stored locally or in the cloud. These days, there are plenty of that will sync your devices and securely back up your storage.
When you pare down and keep only what is necessary – for tax purposes and tracking financial records – you’ll have less clutter and a better understanding of what is in your possession.
Consolidate retirement accounts
How many retirement accounts have you accumulated? Throughout your career, you may have switched employers and acquired multiple retirement accounts. You’re not alone: Many people have aging 401(k)s, IRAs and other retirement accounts of convenience. Talk about financial clutter! Now is a great time to consolidate these. IRAs, SEP IRAs and SIMPLE IRAs can all be consolidated into a single IRA. (Roth IRAs can only combine with other Roth IRAs.) Old 401(k)s can also be rolled into your IRA. When distributing an old 401(k) into your IRA, be sure to review the investment options and expenses in the 401(k) as compared to what is available in your IRA. Combining multiple accounts, may save you fees and most certainly will save you paperwork. Most importantly, you and your advisor can more easily and strategically invest your retirement account for today and the future. When it comes time to take withdrawals, calculations and taxes will be much easier as well.