Monthly Features:
The Great Papers Debate Which Ones Should You
Keep & for How Long? By JAMES LANGE
Who doesn’t feel like they are drowning in paper? Receipts, bills,
deeds, tax returns, paycheck stubs, the list goes on and on. We keep
them because we are too afraid to throw them away. You never know when
you might need them, and there is always the growing threat of identity
theft that makes you think twice before tossing them in the garbage.
(Invest in a shredder!)
We may be keeping these papers, but many of us aren’t organizing them in
a way that they can be retrieved quickly when needed. If you’re like
many Americans, any time you go to organize your pile of important
papers, its size overwhelms you, and you decide to tackle an easier
task.
Don’t worry! There is a way to chip down that paper pile so that
organizing your important documents won’t seem like such an uphill
battle.
Many people have no idea which important documents they should keep and
which they shouldn’t, so they end up either keeping everything or
throwing away documents that they should have kept. Simply knowing the
time frame for keeping certain documents is the first step to getting
organized.
New Year, Fresh Start
As for getting organized, now is as good a time as any. In fact, it may
be better than most.
Everyone should use this bit of down time to get a leg up on the New
Year…and even tax season. April may seem like it’s eons away, but you
will save yourself a lot of headaches with just a bit of organization.
The best way is to start going through all of those important papers
that have been piling up all year.
Below I have compiled a summary of tax and accounting documents with
rough guidelines of how long you should keep them. Keep the list and
post it somewhere, preferably where it won’t get buried.
Documents you never want to part with.
Some documents everyone knows to keep for life: birth certificates,
marriage licenses and wills, for example. And others that you may know
are very important, but aren’t quite sure what their shelf life should
be, particularly those tax-related documents, such as tax returns, the
cost basis of investments, and records of non-deductible IRA
contributions.
The bottom line: you should keep them all. These documents may not need
to be readily accessible, but you should definitely find a safe place
for them. You may want to keep birth certificates, death certificates,
wills and insurance policy information in a safety deposit box at your
local bank.
Records that should go out with the old.
This category involves documents such as house deeds and car titles.
With these documents, the general rule is that as long as you are
responsible for the item related to the document you should keep its
papers.… When you sell your house, chances are you will be buying a new
one and will therefore have a new deed to keep up with. Don’t let the
old one clog your filing cabinet.
Records with a Seven Year Itch.
These are documents that you can get rid of after seven years. When
filing these you may want to file them by date to ensure you don’t keep
them longer than necessary.
Documents in this category include canceled checks/receipts with tax
implications (alimony, charitable contributions, mortgage interest and
retirement plan contributions) and credit card statements if tax related
expenses are documented.
Records to toss after the ball drops.
Generally the fastest growing piles of documents are those records that
should be purged at the end of every year. These include quarterly
statements of retirement plans, bank statements and bills with no
long-term tax importance. These documents generally make up the bulk of
the piles in your home or office because they are coming to you
repeatedly throughout the year.
It’s silly to keep them indefinitely. After a year, they become trash
and that is where they should go. Just remember, with the increasing
threat of identity theft— shredding, rather than tossing, is the way to
go.
Consider Electronic Storage
Even if you know which papers to keep and which you can get rid of,
there will still be a lot of important documents for you to manage.
What’s the best way to keep everything organized?
If you have access to a computer and a scanner, you can make electronic
back-up copies of all paper documents by scanning them into your
computer and saving the file to one of those handy-dandy portable memory
sticks.
Then in the event of an emergency you can simply grab that little memory
stick and know that you will have numbers and records at your disposal.
The sticks are also a great place to store your information for online
accounts.
Some of the larger-capacity memory sticks also come with password
protection so you don’t have to worry about other people getting access
to your information. It may be one of the best little investments of
your time and money.
Keep It Simple
As for the hard copies of these important documents, be sure to keep
them in a fireproof storage box. The best case scenario would have you
saving your information both electronically and in hard copy form.
Either way, be sure to develop a filing system that is easy to use. If
your system is too complicated, you won’t keep it up. Once you’re
organized, you will be thrilled with the peace of mind that comes with
knowing you have all of your important documents organized, ready any
time you need them.
James Lange, CPA/attorney, is a nationally
recognized IRA, 401(k) and retirement plan distribution expert. He is
the author of “Retire Secure! Pay Taxes Later: The Key to Making Your
Money Last as Long as You Do” (Wiley, 2006).
