The Great Paper Debate
The Great Papers Debate
by Jim Lange
Which ones should you keep and for how long?
Who doesn’t feel like they are drowning in paper? Receipts,
bills, deeds, tax returns, pay check 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.
Here’s 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 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. What falls into this category? These
documents are high on the list of important papers. 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, 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 those that are piled up 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.
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 you’re organized,
you will be thrilled with the peace of mind that comes with
knowing you have all of your important documents organized and
that they are ready any time you need them.
____________________
James Lange, CPA/Attorney, is a nationally recognized IRA,
401(k), and retirement plan distribution expert.
Take the Next Step:
- If you don’t have one – invest in a shredder!
- Tackle the paper pile! Make a list and start getting rid of
what you don’t need