Financial Papers: What to Keep or Toss

During tax season, you probably found yourself surrounded by piles of papers — and wondering how long to keep all that stuff. For tax documents — and all your other financial paperwork — here’s your answer.

What How Long to Keep Why
Tax returns (including receipts and supporting documents) Up to six full years The IRS can audit a return up to three years after you’ve filed. The agency can challenge your return for up to six years if it suspects you under-reported your income by 25% or more.
IRA contribution records Permanently Keeping these forms — like IRS Form 5498 and 8606 — may prevent you from paying too much tax when you tap your retirement stash.
Investment and real estate records Seven years after you sell They help track your cost basis — and the taxes you owe when you sell; shred your monthly statements and save the annual summaries.
Bank statements and checks One month to seven years, depending on whether your bank has them available online You could need them if you’re audited by the IRS. If you haven’t already, switch to receiving your bank documents online. Your bank may have past statements available online.
Credit card statements and bills for non-deductible items Shred immediately after the next statement arrives. You don’t need them once you confirm the charges and have proof of payments.
Form W-2 Wage and Tax Statement Until you start receiving Social Security benefits Usually your best proof of earnings for Social Security
Pay stubs Until the end of the year Not needed once you get your W-2
Insurance policies Until they expire — except for liability policies with “occurrence” coverage Occurrence-based policies cover you for damages that occur while the policy was in effect — even if the claim happens after coverage expires.
Receipts
  • Day-to-day debit/credit: Toss after confirming the amount charged is correct.
  • Big-ticket item: Keep with other purchase documentation for proof of value in case of loss or damage.
  • Charitable donations: Store and keep for tax-filing purposes.
Depending on the type, amount and reason for the purchase, they may be necessary for insurance- and tax-filing.

Where to Keep Them

Once you’ve figured out which papers to keep, you’ll need to decide where to keep them. Here’s a look at your options, which offer some trade-offs between security and accessibility. Be sure to tell a relative or family friend where you keep this paperwork.

Safe-deposit boxes. Generally, it’s one of the safest places to keep your most important original documents, especially the ones that aren’t easily reproduced and the ones you’ll keep for years.

The downside: Rental fees and access only during bank hours. Your state law may require a safe deposit box sealed at your death, which could make it a questionable choice for some important documents, such as your will.

 

Fireproof home safes. A safe in your home gives a measure of security along with 24/7 access. Over time, it may be less expensive than a safe deposit box; but it isn’t as secure, either. They may be a good choice for things you want to keep both secure and accessible, such as passports and Social Security cards.

The downside: Levels of fireproofing vary. The safe could be lost in a flood, tornado or hurricane — and aggressive thieves can cart off the entire safe.

 

Home filing cabinet. This is a reasonable choice for things you need to access regularly or don’t need to keep very long, such as pay stubs, payment receipts, bank and credit card statements.

The downside: Not very safe or secure. If it doesn’t lock, your files are wide open to both thieves and nosey visitors.

 

The web. By creating images of key documents and uploading them to an online storage site, you give yourself access from any computer. That could be a lifesaver if you’re away from home or your entire community is devastated by a disaster. Be sure to use a common file format so that you can easily recover the documents. Also use online storage as a backup to a local copy, perhaps on a portable drive. Keep in mind that sometimes only the original document will do.

The downside: You could face monthly fees and potentially put your sensitive information at risk. Encrypting your files and folders helps prevent unwanted access to your information.

Automate and Go Green

Reduce future clutter — and save some trees — by going electronic.

  • Arrange for utility and other bills to be sent by email.
  • Pay your bills electronically.
  • Use a scanner to replace key paper documents with electronic versions. Be sure to create a backup file that’s stored in a separate location.

 

Article Tags

Related Posts