There have been times when I have been accused of being a pack-rat. Honestly, sometimes the accusations have been true. However, when it comes to financial paperwork many of you may have a similar problem. It is very easy to hoard more than we should and sometimes even easier to just pitch it out.
What is the best direction in keeping financial paperwork? Really, it depends. Lets look at some different items.
Checking/Savings/CD’s
In most cases, you should retain your monthly statements for one year. Once you have received your final statement of the year you can eliminate the earlier statements from your file. That final statement, and any cancelled check, should be kept for seven years if there is anything tax or business related.
Any loan discharge documents that you may receive – like when you pay off your home – should be retained forever!
Investment/Retirement Accounts
Typically, unless you have monthly activity in your accounts you will only receive a quarterly statement. Those quarterly statements should be kept until you receive your annual statement and you validate the final statement. The annual documents need to be retained until you transfer or close the account.
Any equity purchase or sell statements should be retained until you have satisfied any tax needs such as a cost basis for any capital gains or losses. This is primarily important for taxable accounts and not necessarily for your 401(k) or IRA accounts since you are not paying taxes on your transactions.
Finally, if you rollover your 401(k) or IRA it is important that you retain those transfer documents until you transfer or close that account.
Monthly Bills and Credit Cards
In most cases, bills can be discarded once a cancelled check has been received. The exception would be any bills that may be used for tax purposes and those should be kept for the same 7 year period. This also applies for credit card receipts and bills.
Pay Stubs
Wow, the important one that allows us to pay those bills and invest! Each one of your stubs should be retained through the year until your W2 is received and matches up to your pay stubs.
Taxes
The area that we all love! The general rule is to retain tax paperwork, and supporting documents, for at least seven years. This would include both your state and federal tax filing papers.
Be aware, the IRS has up to three years to audit your taxes from your filing date for that year.
Home Improvement Receipts
Any receipts you have for improvement work on your home should retained for purposes of reducing your capital gains taxes on the property you have improved.
Easy Storage, Easy Retrieval
One thing to remember is to keep your documents in a safe place, but also in a place that they are quickly retrievable. Recent disasters should help us understand why this is important. Having your documents in one place will allow you to always find them but also allow you to find them quickly if the need arises.
Technology can be our friend here too. With the availability of scanners and computer storage capacity ever increasing, many people are finding it easy to scan their documents for storage or request their statements be sent electronically. There are many software products available now that simplify this process of storing and retrieval. Remember, if you store digital documents you must maintain frequent backups.
Shred, Shred, Shred!!
However you decide to manage your documents, make sure you protect yourself by properly shredding those that you are planning to discard. Identity theft is a growing problem and taking steps to properly destroy your personal information that is no longer needed is extremely vital. Protect yourself and your family by shredding anything with your name, address, social security number and account information.
