The Great Papers Debate: Which Ones Should You Keep and for How Long?
CPA and attorney Jim Lange helps you get organized by laying out which important documents you should be keeping and how long you should be keeping them.
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Who doesn’t feel like they are drowning in paper? Receipts, bills, deeds, tax returns, pay check stubs, the list could go 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. 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.
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.
I think everyone should use this bit of down time before the holiday crunch 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 to get organized is to start going through all of those important papers that have been piling up all year.
Here is 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. There are 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 you aren’t quite sure what their shelf life should be, particularly those tax related documents, such as audit reports and year-end financial statements. You should keep them all. “Documents that you should keep permanently are those that you are going to need repeatedly throughout your life,” says Lange. “These documents may not need to be your most accessible, but you definitely need to find a safe place for them. You may even want to keep some of them in a safety deposit box at your local banks. These include birth certificates, death certificates, wills, and insurance policy information.”
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. What falls into this category? “These documents are high on the list of important papers,” says Lange. “But there is no need for you to keep them forever. 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 documents that people keep too long or not long enough are those records that should be purged at the end of every year. These include quarterly statements of retirement plans, pay check stubs, and bills (Get rid of these after your check has cleared!). “These documents generally make up the bulk of those that are piled up in your home or office because they are coming to you repeatedly throughout the year,” says Lange. “Think about it. Your bills are coming every month and many people are getting pay stubs twice a month if not more. It’s silly to keep them indefinitely. After year, they become trash and that is where they should go.”
Records with a short shelf life. The records that fall into this category, namely credit card receipts are sure to pile up fast if you don’t find a way to manage them. “Credit card receipts tend to be papers that many want to keep even though it isn’t necessary,” says Lange. “Credit card receipts need only be kept for 45 days. If your monthly receipts match up, you can shred the receipts.”
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.
As for the hard copies of these important documents, be sure to keep them in a fire proof 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 your organized you will be thrilled with the peace of mind that comes with knowing you have all of your important documents organized and at the ready any time you need them.
James Lange, CPA
Jim is a nationally-recognized tax, retirement and estate planning CPA with a thriving registered investment advisory practice in Pittsburgh, Pennsylvania. He is the President and Founder of The Roth IRA Institute™ and the bestselling author of Retire Secure! Pay Taxes Later (first and second editions) and The Roth Revolution: Pay Taxes Once and Never Again. He offers well-researched, time-tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans. His plans include tax-savvy advice, and intricate beneficiary designations for IRAs and other retirement plans. Jim's advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendations frequently appear in The Wall Street Journal, and his articles have been published in Financial Planning, Kiplinger's Retirement Reports and The Tax Adviser (AICPA). Both of Jim’s books have been acclaimed by over 60 industry experts including Charles Schwab, Roger Ibbotson, Natalie Choate, Ed Slott, and Bob Keebler.
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