At the end of the year or the beginning of a new year, many people routinely do things that should be done on a regular basis such as checking the batteries in your smoke detectors. It is also a good time to ensure that you are properly filing or discarding important documents.
Even though there are many things that can be obtained electronically today, there seems to be more paper that comes through the house than ever before. There still may be a good reason to file certain important documents and if that is the case – how long should you keep these documents? These reasons may include having a paper trail that may be needed for anything from having a warranty for products purchased to having investment statements from various brokerage accounts that justify cost basis for tax purposes. Let’s look at some of these documents and review the amount of time that you should keep the documents.
Forever
The following documents should be held on to indefinitely. These include:
- Birth certificates
- Social Security cards
- Marriage certificates
- Adoption papers
- Death certificates
- Passports
- Wills and living wills
- Powers of attorney
- Legal filings
- Military records
- Retirement and pension plans
- Inheritance documents
- Beneficiary forms
- Cost basis & purchased records
For anything that you’ve bought or insured, you should save those documents for at least as long as you own them, they stay active, or until the warranty ends. These can include:
- Health insurance policies
- Disability and unemployment benefits
If you have financial records or important documents that you aren’t sure you’ll need, err on the side of caution. Keep any documents until you are positive you don’t need them.
Various Records1
| Items to Keep | When to Toss |
| MEDICAL BILLS | Once the claim has been paid, you don’t need these any longer, unless you’re deducting the medical expense on your annual tax return. Then follow IRS guidelines for keeping these documents (especially for HSA distributions). |
| UTILITY BILLS | Typically, you could dispose of these after your bill has been paid. If you anticipate selling your home, hang onto the last years’ worth to help potential homeowners. |
| LOANS & INSURANCE Documentation of major loans and insurance policies | Keep these along with all of your important identification papers (birth certificates, marriage license, Social Security cards, passports, etc.) in a secure spot, such as a safe deposit box at your local bank or a firebox at home. Keep payoff statements forever. |
| TAX RECORDS Annual tax returns and supporting documents | You can be audited for up to seven years by the IRS (see irs.gov for additional information). Includes tax returns, W-2s, 1099s, K-1s, IRA contribution records, charitable receipts, medical expense documentation (especially for HSA distributions). |
| PAYSTUBS | Keep these until you’ve received your annual W-2 form. |
| PROPERTY RECORDS that show improvements to your home | These can be used when selling a home to offset capital gains when the property is eventually sold. Keep until the house is put up for sale. |
| BANK STATEMENTS | Keep statements for one year. Part ways with ATM receipts after checking your bank statement. |
| INVESTMENT STATEMENTS | Keep quarterly statements for one year. Keep year-end statements and all capital gains tax reports for three years. Keep statements showing purchases/sales. |
| CREDIT CARD STATEMENTS | Routine purchases for one year. Tax-related purchases for seven years. |
Become Best Friends with Your Shredder
Invest in a quality paper shredder, get the okay to use one at the office or see if you can use a shredding service. Warning: The shredder can be one of the most annoying pieces of equipment that you will ever own. If you attempt to shred too many sheets of paper at one time, it will jam. Review the instructions on the shredder to determine how many sheets you can put through at one time. Use that as a maximum amount. Typically, it is worth it to proceed at a slower pace while loading fewer sheets than what you may normally be inclined to do so that the shredder is less likely to jam. You will be tempted to try to jam many more forms into the shredder than recommended – don’t do it. Also, it may be worth it to have shredder lubricant available – this can prevent jams and you can purchase that at an office store or online.
Shredding is key when getting rid of old documents. If it’s going away, it needs to be shredded to prevent anyone from acquiring any personal information about you. You can recycle what’s left.
Storage Files
Physical Storage2
Casually throwing documents into the garbage bin is liking posting a sign that says you have sensitive data that you are giving away. Identity theft is a huge problem in today’s society. There is no reason to make it easier for these bad actors.
For the documents you need to retain, you have a few decent physical storage options, such as:
- Locked cabinet
- Fireproof safe
- Safe deposit box
A locked cabinet is a simple solution that keeps your essential papers in your home. However, a determined thief could still break in and steal your information.
A fireproof safe offers better protection from the elements. However, it could get stolen if it’s not bolted to the floor or well-hidden.
If you’d rather keep your sensitive information offsite, a safe deposit box at your local bank offers a lot of security while keeping your documents accessible when needed. The biggest downside is having to pay a recurring fee to maintain usage rights from year to year and also notifying the important people of having this box at a particular bank.
No matter which option you choose, you should put the documents into labeled folders so it’s easy to find and retrieve what you need later. Doing so also helps organize your financial paperwork for your heirs.
Electronic Storage – Switch to Digital3
Converting to digital with your statements and paychecks can help solve a lot of problems. Almost every bank, credit-card company, investment company, and employer now offers a paper-free option. Take them up on this and switch to paperless delivery.
Make sure you follow through with maintaining documents and web site access and storage in a secure fashion that is constantly up-to-date. Although opting in to e-delivery helps prevent additional physical clutter, you may still have a big mess on your hands in time. This one will just be on your computer. So, make sure you employ the same thinking there as with your desk. Keep it clean and organized. Regularly go through your emails and purge the ones that are no longer relevant.
Keeping your digital files secure and accessible:
- Choose a digital storage method, such as your home computer, an external drive, a cloud service (e.g., Dropbox, Google Drive, Microsoft One Drive, iCloud or Amazon Cloud Drive) or a third-party solution, such as Quicken LifeHub
- Scan and upload each document into the system, organizing it into folders
- Make sure your information is secure via features such as password protection, file encryption and two-factor authentication
- Regularly back up your data (your service provider may do this for you)
If the thought of one more password to remember is just too much, consider using a password manager.
Get Started Now
Make sure you develop a routine that regularly addresses the need to have discarded paper shredded. The longer you wait to tackle that mess, the bigger that mountain of paper will grow.
References
1. “Tidying Up Financial Clutter” – https://www.hartfordfunds.com/practice-management/client-conversations/financial-planning/tidying-up-financial-clutter.html
2 “How to Store Your Financial Documents the Right Way” – https://www.kiplinger.com/personal-finance/how-to-store-your-financial-documents
3. “Financial Documents: What to Save and What You Can Throw Away” – https://www.forbes.com/advisor/taxes/financial-documents-what-to-save-what-to-throw-away/