What files do I need to keep?
At year end (and year beginnings) sometimes we get to organizing ourselves and the question comes up "which statements are required to maintain files and which can I shred?". Here are some helpful tips from Consumer Reports:
Keep for a year or less
Begin your organizing by setting up a place you can keep your bills until you pay them. As soon as a bill comes in, for example, put it in a folder labeled "bills to pay." Then set an electronic calendar reminder for a time when you're going to sit down and pay them. Store the documents listed below in a file cabinet. You don't need to keep other bills.
If you don't pay your bills electronically, now may be a good time to set up online banking. "That way you can schedule your payments in advance, and even set up monthly bill payments for amounts that don't change, like your mortgage, so you won't be late," Denton says.
To help avoid identity theft, shred anything you plan to throw away that contains personal data. More than 50 percent of the people we surveyed said they put documents through a shredder before they trashed them. Look for a crosscut shredder rather than a strip one, which leaves long paper bands that could be reassembled.
Documents that you have no long-term need to keep include:
Bank records
Keep deposit and ATM receipts until you reconcile them with your monthly statements. File your monthly checking and savings account statements. After you do your taxes, file any statements needed to prove deductions with your tax records; the rest can be shredded.
Credit-card bills
You don't need to keep them after you've checked and paid them, unless you need a bill to support a deduction you'll be taking on your taxes, such as for a charitable donation (in which case you'll need to file the bill with your current-year tax records). If an item you've charged is under warranty, keep the bill until the warranty expires. Staple the credit-card bill to the warranty document and put it in a file with other warranties; you may need the bill as proof of purchase if the item needs repair.
Current-year tax records
Keeping your records organized can save you headaches and money at tax time. Tax preparers might charge more if you give them a disorganized shoe box full of papers. Place documents you'll need for your next return in a file. If you need to save a lot of receipts and bills, use a standing accordion file.
Insurance policies
Keep policies that you renew each year, such as those for your home, apartment, or car, until you get new policies, then shred the old ones.
Investment statements
You can shred your monthly and quarterly statements from brokerage, 401(k), IRA, Keogh, and other investment accounts as new ones arrive. But hold on to annual statements until you sell the investments. You may want to have separate folders for traditional and Roth accounts to help you keep track of amounts that are deductible and non*deductible for tax purposes. Better yet, sign up for electronic statements if your financial institutions offer them.
Pay stubs
Keep the calendar year's records until you reconcile them with your annual W-2 form, then shred them.
Receipts
If you're not doing anything with your receipts—like tracking your spending, itemizing tax deductions, or using them to return purchases—you can get rid of most of those little scraps of paper immediately. If you need to keep them on hand so you can verify amounts against your credit-card bills or bank statements, create a folder labeled "receipts" and keep it with your bills-to-pay folder. That way you'll have your receipts handy when you pay your credit-card bills. If you think you might return something, ask the sales*person how long you have to decide, and jot down the date on your receipt.
Keep for a limited time
Documents relating to investment purchases, loans, and other items that expire or are sold can be stored in an out-of-the way file cabinet. But try to go through them once a year and toss out papers as detailed below.
Household furnishings paperwork
Keep receipts, warranties, and, while you're at it, instruction booklets for major appliances and electronics. You can get rid of a warranty when the period it covers has passed, and the rest of the material when you no longer own an item. Ditto for canceled receipts and bills for major purchases such as furniture.
Investment purchase confirmations
You'll need these to establish your cost basis and holding period when you sell the investments. If this information appears on your annual statements, you can keep those instead. Store the records in your file cabinet until you sell the investments, at which time you should move the back-up records into that year's tax-return file.
Loan documents
Keep closing documents for mortgage, vehicle, student, and other loans in a safe-deposit box. You can get rid of them after the loan is paid off.
Savings bonds
Hold these in a secure place until you cash them in. Or you can convert them to electronic form using the Treasury's SmartExchange program, at www.treasurydirect.gov.
Vehicle records
Keep purchase receipts, titles, and registration information in a safe-deposit box as long as you own the car, boat, truck, or other vehicle. Store the maintenance and repair records in your home filing cabinet.
Hold these for seven years
This category includes personal federal and state tax returns and their supporting records. You should keep them because your returns can be randomly audited up to three years after the date you filed the return. If you fail to report more than 25 percent of your gross income, the government has six years to collect the tax or start legal proceedings. You can be audited at any time if the IRS suspects you of fraud.
After seven years, you may want to keep just the tax returns if you'd like to track your income over the years. Keep tax records more than seven years old in your out-of-the-way file cabinet. Better yet, scan the returns into your computer and store them on a CD or external hard drive. Nearly half of the people in our survey said they kept both electronic and paper tax files, but only 3 percent stored their records only in electronic form.
Do not toss
These are permanent members of your financial paperwork family, which you may need to retrieve occasionally. Essential records such as birth and death certificates, marriage licenses, divorce decrees, Social Security cards, and military discharge papers should be kept in a safe-deposit box. Here are some other documents you should hold on to forever:
Defined-benefit plan documents
Keep pension-plan documents from your current and former employers. Store them in your file cabinet.
Estate-planning documents
Keep copies of wills, trusts, and powers of attorney in your safe-deposit box. You should also make sure your attorney and your executor have copies. It's also a good idea to give your primary-care physician and anyone named to make decisions on your behalf copies of your health-care proxy.
Life-insurance policies
For permanent life insurance—policies that have a cash value or investment component—keep documents and a list of the companies that issued them and their phone numbers in your safe-deposit box. If you have a term life policy, hold the documents until the term is over, then toss them.
Safe-deposit box inventory
Note the location of the box and your keys, and keep a list of what you have in it. Update the list once a year or as you add or remove documents. Keep the inventory list in your out-of-the way file cabinet. You should also keep photocopies at home of any documents you have stored in the box in case you need to refer to them.
Keep for a year or less
Begin your organizing by setting up a place you can keep your bills until you pay them. As soon as a bill comes in, for example, put it in a folder labeled "bills to pay." Then set an electronic calendar reminder for a time when you're going to sit down and pay them. Store the documents listed below in a file cabinet. You don't need to keep other bills.
If you don't pay your bills electronically, now may be a good time to set up online banking. "That way you can schedule your payments in advance, and even set up monthly bill payments for amounts that don't change, like your mortgage, so you won't be late," Denton says.
To help avoid identity theft, shred anything you plan to throw away that contains personal data. More than 50 percent of the people we surveyed said they put documents through a shredder before they trashed them. Look for a crosscut shredder rather than a strip one, which leaves long paper bands that could be reassembled.
Documents that you have no long-term need to keep include:
Bank records
Keep deposit and ATM receipts until you reconcile them with your monthly statements. File your monthly checking and savings account statements. After you do your taxes, file any statements needed to prove deductions with your tax records; the rest can be shredded.
Credit-card bills
You don't need to keep them after you've checked and paid them, unless you need a bill to support a deduction you'll be taking on your taxes, such as for a charitable donation (in which case you'll need to file the bill with your current-year tax records). If an item you've charged is under warranty, keep the bill until the warranty expires. Staple the credit-card bill to the warranty document and put it in a file with other warranties; you may need the bill as proof of purchase if the item needs repair.
Current-year tax records
Keeping your records organized can save you headaches and money at tax time. Tax preparers might charge more if you give them a disorganized shoe box full of papers. Place documents you'll need for your next return in a file. If you need to save a lot of receipts and bills, use a standing accordion file.
Insurance policies
Keep policies that you renew each year, such as those for your home, apartment, or car, until you get new policies, then shred the old ones.
Investment statements
You can shred your monthly and quarterly statements from brokerage, 401(k), IRA, Keogh, and other investment accounts as new ones arrive. But hold on to annual statements until you sell the investments. You may want to have separate folders for traditional and Roth accounts to help you keep track of amounts that are deductible and non*deductible for tax purposes. Better yet, sign up for electronic statements if your financial institutions offer them.
Pay stubs
Keep the calendar year's records until you reconcile them with your annual W-2 form, then shred them.
Receipts
If you're not doing anything with your receipts—like tracking your spending, itemizing tax deductions, or using them to return purchases—you can get rid of most of those little scraps of paper immediately. If you need to keep them on hand so you can verify amounts against your credit-card bills or bank statements, create a folder labeled "receipts" and keep it with your bills-to-pay folder. That way you'll have your receipts handy when you pay your credit-card bills. If you think you might return something, ask the sales*person how long you have to decide, and jot down the date on your receipt.
Keep for a limited time
Documents relating to investment purchases, loans, and other items that expire or are sold can be stored in an out-of-the way file cabinet. But try to go through them once a year and toss out papers as detailed below.
Household furnishings paperwork
Keep receipts, warranties, and, while you're at it, instruction booklets for major appliances and electronics. You can get rid of a warranty when the period it covers has passed, and the rest of the material when you no longer own an item. Ditto for canceled receipts and bills for major purchases such as furniture.
Investment purchase confirmations
You'll need these to establish your cost basis and holding period when you sell the investments. If this information appears on your annual statements, you can keep those instead. Store the records in your file cabinet until you sell the investments, at which time you should move the back-up records into that year's tax-return file.
Loan documents
Keep closing documents for mortgage, vehicle, student, and other loans in a safe-deposit box. You can get rid of them after the loan is paid off.
Savings bonds
Hold these in a secure place until you cash them in. Or you can convert them to electronic form using the Treasury's SmartExchange program, at www.treasurydirect.gov.
Vehicle records
Keep purchase receipts, titles, and registration information in a safe-deposit box as long as you own the car, boat, truck, or other vehicle. Store the maintenance and repair records in your home filing cabinet.
Hold these for seven years
This category includes personal federal and state tax returns and their supporting records. You should keep them because your returns can be randomly audited up to three years after the date you filed the return. If you fail to report more than 25 percent of your gross income, the government has six years to collect the tax or start legal proceedings. You can be audited at any time if the IRS suspects you of fraud.
After seven years, you may want to keep just the tax returns if you'd like to track your income over the years. Keep tax records more than seven years old in your out-of-the-way file cabinet. Better yet, scan the returns into your computer and store them on a CD or external hard drive. Nearly half of the people in our survey said they kept both electronic and paper tax files, but only 3 percent stored their records only in electronic form.
Do not toss
These are permanent members of your financial paperwork family, which you may need to retrieve occasionally. Essential records such as birth and death certificates, marriage licenses, divorce decrees, Social Security cards, and military discharge papers should be kept in a safe-deposit box. Here are some other documents you should hold on to forever:
Defined-benefit plan documents
Keep pension-plan documents from your current and former employers. Store them in your file cabinet.
Estate-planning documents
Keep copies of wills, trusts, and powers of attorney in your safe-deposit box. You should also make sure your attorney and your executor have copies. It's also a good idea to give your primary-care physician and anyone named to make decisions on your behalf copies of your health-care proxy.
Life-insurance policies
For permanent life insurance—policies that have a cash value or investment component—keep documents and a list of the companies that issued them and their phone numbers in your safe-deposit box. If you have a term life policy, hold the documents until the term is over, then toss them.
Safe-deposit box inventory
Note the location of the box and your keys, and keep a list of what you have in it. Update the list once a year or as you add or remove documents. Keep the inventory list in your out-of-the way file cabinet. You should also keep photocopies at home of any documents you have stored in the box in case you need to refer to them.
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