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Monday, April 7, 2014

How long do I need to keep my financial documents?

2 years? 6 years? 10 years? Wondering how long you need to keep those towering piles of paper records? Here are tips on what you should shred and how to decide what to keep.

Chances are if you are like most people you hoard and pile away countless stacks of papers and records but don't really know what to do with them.  However, with tax season ending just around the corner, right now is a great time to get serious about reducing your financial clutter.  Here are some tips below to help you decide how long to keep your financial documents:

Important Documents to Keep

*7 years is the magic number and is typically how long the IRS has to audit your tax return.  For example, this year's 2014 return you will want to keep until April 2022.  

  • Documents that pertain to an asset you own outside a retirement fund -- confirmations showing the purchase price of a stock, for example, or improvements on a house -- should be kept for as long as you own the asset, plus seven years.
  • W-2 forms should be kept until you start drawing Social Security.
  • Three tax forms relating to retirement accounts should be kept until those accounts are drained. Those include Form 8606, which helps you calculate your tax basis for future retirement-plan withdrawals; Form 5498, which shows individual retirement account and Roth IRA contributions; and Form 1099-R, which shows IRA withdrawals.
  • For all loans, including mortgages, you can ditch monthly or quarterly statements once you get the year-end summaries, and you can destroy the year-end summaries when you've paid off the loans. However, you should keep indefinitely the final notice showing a loan has been paid off in case a disorganized lender or unscrupulous collector pretends the debt hasn't been paid and tries to dun you.
  • For insurance purposes, keep receipts and appraisals for big purchases as long as you own the items.
  • Certain documents -- including birth, marriage and death certificates, divorce papers and military discharge papers -- should be kept for life.
What to Backup 

Even if you insist on clinging to paper, you should consider scanning and storing copies of essential documents off-site in case your home is destroyed. You can back up important files to CDs, thumb drives or external hard drives and leave them in a safe-deposit box or with an out-of-state relative, or use online services such as Google Drive to store your date for free online.

Either Toss It or Shred It

  • TM and bank deposit receipts. Toss them after you reconcile them with your bank statements.
  • Credit card receipts. Once a purchase shows up on your credit card statement, you can ditch the slip -- unless you need it for tax purposes, in which case you can scan it and keep it with that year's tax records.
  • Pay stubs. Shred them once you get your year-end summary.
  • Receipts for minor purchases. After three months, the chances of you returning the item are slim. I have three folders labeled "this month," "last month" and "two months ago." New receipts are dropped into the "this month" folder. Each month I transfer the receipts to the next folder and dump the ones in the "two months ago" file. (I got this receipt-organizing tip from organizer Debbie Stanley's terrific book, "Organize Your Personal Finances in No Time.")
  • Utility bills. If you aren't writing off a home office -- and thus a portion of your utilities -- there's not much reason to hang on to last month's bill, let alone anything before that.
  • Phone and Internet bills. If you deduct a portion of these as a business expense, scan and keep them with that year's tax records. Otherwise, ditch them.
  • Old insurance claims. If the claim was paid, you can shred it after a year. If you wrote off medical costs or a casualty loss on your taxes, however, keep the information with that year's tax records.
  • Social Security statements. When you get a new one, ditch the old one.
  • Workplace retirement-plan statements. Keep the year-end statements for your 401k or 403b and trash the rest.
  • Traditional pension information. If you're lucky enough to have a traditional, defined-benefit pension, hang on to any correspondence you get about it. Employers do go out of business, and the information you receive could help you track down a much-needed benefit when you retire.
  • The dumb stuff. You know what I mean. Expired warranties. Owners manuals for appliances you no longer own. Repair receipts for the car you sold three years ago. Policies from the insurer you've since replaced.


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