More and more people are opting to store financial records digitally, from scanning important receipts and storing them on a home computer to accessing statements through electronic records only.
The potential for less paper and the possible pitfalls of cybertheft may make you both eager and wary about storing your financial records online.
Luckily, there are clear options for managing documents and ensuring you have what you need to track your retirement savings, safeguard your financial transactions, and access your estate plan.
These rules of thumb can help you decide when to digitize documents and when to keep paper copies.
Investment, retirement, and banking records
One way to think about managing documents, both paper and digital, is whether the institution providing them has safer storage than you do. “A financial firm’s technology and security procedures are usually going to be a lot better than your personal computer,” says Stanley Poorman, a financial professional with Principal®.
In addition, most statements are permanently part of your account, which you can access through an app or online. “They’re a perfect example of something you don’t have to worry about storing and a way you can stop wasting paper,” Poorman says.
Digital or paper? Digital, and you don’t even need to keep a copy on your home computer. However, leave instructions in your estate plan (see below) on how to access should the need arise.
Receipts
Many people no longer itemize deductions, which in turn impacts the need to keep any receipts—even digital versions. “A lot of the time you won’t even get close to itemizing on your return,” Poorman says.
Digital or paper? Maybe neither. Once you’ve confirmed that transactions match your financial statements, you can toss them. If you’re in doubt, take a photo of or scan the receipt—but check that there’s no personal information such as a credit card number.
Tax records
Whether or not you should keep a digital or paper copy of tax returns depends. “I prepare my own taxes using an online service, and it saves all my previous returns,” Poorman says. “So it’s more of a personal preference. I print them out because I like paper for some things, but a service may save copies for you.”
A local tax preparer may still rely on paper, but the push to e-file could just as likely mean you’re signing (and they’re storing) returns digitally. If so, ask how they’re securing those files. “Why would you take up personal data storage to house something that is housed somewhere else more securely?” Poorman says.
If you’re prepping your returns by yourself, store them digitally or with a hard copy for seven years, and keep them easily accessible. Digital storage should be with a two-factor authenticated, password-protected network and computer to deter cyberthieves, or a flash drive with built-in encryption that’s securely stored (i.e., not in a junk drawer).
Digital or paper? Depends on your method of preparation; if digital, provide access instructions in your estate plan.
Estate plan
Unlike other important financial records, the legal documents that make up an estate plan must typically be in paper form. “States each have their own requirements for witnesses, notarizing, and even the color of ink,” Poorman says. While you can keep a digital copy, “you can never get rid of the originals,” he says.
If you’re assembling an estate plan folder, consider including a list that documents all those digitized investment and bank accounts, including account name, number, contact information, and beneficiary. (This estate planning workbook (PDF) can get you started.) “Beneficiary information is hard to find when it’s digitized,” Poorman says.
Digital or paper? Keep the originals of all estate plan documents. If you digitize certain elements, such as a beneficiary list, provide a way for trusted people to access.
Next steps
- Have you updated your beneficiaries? Log in to your Principal account to review this key information and check your retirement savings progress. First time logging in? Create an account.