10/12/2011 6:04 PM ET|
Junk you can toss right now
Are you holding on to paperwork 'just in case' it's needed? Know what you really need, and you can confidently shred the rest.
It can be tricky to figure out what paperwork you need to keep and what you can toss. Too often we cling to paper because we may need it "someday."
"It's all fear, baby!" said professional organizer Monica Ricci of Catalyst Organizing in Atlanta. "We often fear what we are unsure of or don't understand. . . . If you're uncertain about the value or whether you'll need it again, you tend to err on the conservative side and keep it."
That can lead to overstuffed filing cabinets and paperwork clutter that weighs on your psyche.
But so much of what we keep is really unnecessary. To relieve your soul, and your filing cabinets, here's a list of paperwork you can live without. Such as:
There's usually no need to keep these for tax purposes -- or any other purpose, for that matter.
But the tax man has to be paid eventually. When you take out the money, you typically pay taxes on the whole withdrawal -- none of it is sheltered. No amount of paperwork saved over the years will change that, so you might as well shred the statements and give your file cabinets some wiggle room.
One exception is when you make after-tax contributions to a retirement plan, such as those made to a Roth 401k. If you've made such contributions, your year-end summary should reflect that. Hang on to those so you can avoid paying taxes on the contributions when you withdraw them, and ditch the intervening statements.
You'll also want to keep the annual statements once you start taking withdrawals from the plans in retirement.
"Folks who are obligated to make mandatory withdrawals at age 70 1/2 and beyond may need to be able to prove the date on which their withdrawals started," said Los Angeles tax pro Eva Rosenberg, who blogs at TaxMama.com. "So I would try to get a printed or .pdf annual statement, showing the transactions for the year."
What about hanging on to the statements to see how your investments perform over the years? Well, you can do that, or you can use this newfangled thingy called the Internet to track the progress of your investments. Most 401k providers have all the information you'll ever need on their websites.
You'll need to keep more paperwork when it comes to your individual retirement accounts and Roth IRAs. Hang on to the following forms until your retirement accounts are emptied:
- Form 8606, which tracks your nondeductible contributions.
- Form 5498, which shows your annual contributions and the account's fair market value.
- Form 1099-R, which details any withdrawals.
If you're one of the dwindling number of people who are covered by a traditional defined-benefit pension, keep the annual statements indefinitely. Those can help you track down your retirement benefits, even if the company shuts down someday.
Old insurance policies
The usual advice is to ditch the old versions of your insurance policies once the replacements arrive.
But consumer advocate Amy Bach, the executive director of United Policyholders, thinks it's worth scanning and saving homeowners policies (although you can still ditch the paperwork once it's scanned). Insurance companies are constantly shrinking the coverage they offer, Bach said, and they may not give you adequate notice of changes to your policy.
"If you suffer a loss, and your current policy offers less coverage than you thought you had, and if you feel you didn't get adequate notice about the reduction in coverage, you'd have proof of the better, older coverage," Bach said. "After the Northridge earthquake (in Los Angeles in 1994), there was a huge settlement with Allstate homeowners who proved through their very good lawyers that they got inadequate notice of reduction in their earthquake coverage under their homeowners insurance."
Scanning policies and storing them off-site, even if it's just as an attachment to an email, is a smart practice in any case. If your house is destroyed, you'll still have access to your policies.
You'd think you could get copies from your insurer or your insurance agent, but that's not always the case, Bach said.
"People are reporting to United Policyholders that their agents or brokers say they don't keep copies of the policies," Bach said, "and people seem to have trouble getting them."
If you find an expired life insurance policy, call the insurer to see if it has any value. If not, out it goes.
Claims are a different story. If you get a fat check from your insurer -- for a totaled car, for example -- you may want to hang on to the claim information for seven years, in case the Internal Revenue Service has questions about where that money came from. It's unlikely, so don't panic if you haven't kept such paperwork in the past. Just keep the possibility in mind going forward.
Medical claims can be problematic. If you've ever been dunned by a doctor for a bill you thought was long since paid by your insurer, you'll understand why it may be smart to hang on to claim information for a few years. You don't have to keep the actual paper, though. It's OK to scan the paperwork and store the digital copies off-site.
Your mutual fund companies have to provide these by law, and they contain lots of important information, like the fees you're being charged. But do you read them? Yeah, right.
The information they contain is online if you ever need it. Consider signing up for electronic delivery so you can ignore further prospectuses without killing trees.
Old tax documents
You'd be smart to hang on to your actual tax returns indefinitely, but all the supporting documentation can be shredded after seven years.
The stuff you should keep includes not only the main form you send in (1040, 1040A, 1040EZ) but also any schedules (such as Schedule A, which details your itemized deductions, or Schedule C, for a business) and other attached forms, such as your W-2s. In short, if you send it to the IRS, you should keep a copy.
The rest of your documentation -- the paperwork you'd dig out if you were ever audited -- can be destroyed after the risk of being audited essentially expires at seven years (the IRS can audit you any time if it suspects fraud, but such audits are rare). This disposable documentation includes things like receipts for charitable contributions, records of child care expenses and canceled checks or receipts tracking other tax-deductible costs.
Bank and credit card statements
If they're not tax-related, you can shred these after a year, which is well past the point any disputes or other problems are likely to arise. If they are tax-related, keep them for seven years, but don't panic if you accidentally shred them early. Banks and card issuers typically give you online access to your statements for at least six years, so you can get copies of statements if you need them.
All the intermediaries
You can ditch ATM receipts and credit card slips after you make sure they're properly reflected in your monthly statements. You can ditch pay stubs after you get your W-2 form for the year (although you should hang on to your last stub of the year if you paid union dues or other tax-deductible expenses that aren't reflected anywhere else). If you get a detailed year-end summary of an account, you can trash the intervening monthly or quarterly statements.
Regular old bills
If they're tax-related, keep them for seven years. Otherwise, there's little reason to hang on to these. Shred utility, phone and Internet service bills after a year or so. If you get monthly statements and payment coupons for loans, you can shred those when you get your year-end statements -- or, better yet, sign up for electronic statements and payments to rid yourself of this unnecessary paper. Once you pay off a loan, hang on to the last statement showing a zero balance, just in case you get dunned by a clueless collector down the road.
Paperwork for stuff you no longer own
Trash warranties, registration cards and owner's manuals for anything no longer in your possession. The exception is real estate or any other asset that might have tax implications; you'll want to hang on to that paperwork for seven years after you sell.
There you go -- a ton of paperwork goes off to the shredder, and you never have to worry about it again. That should lift a load off your psyche.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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Just goes to show that you can't believe what you read:
A corporation is required to keep its tax records for 7 years. Generally speaking, an individual is required to keep their tax records for 3 years, not the 7 this article states. Consider the following, from the official IRS website on tax record retention:
Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.
- You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
- You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
- You file a fraudulent return; keep records indefinitely.
- You do not file a return; keep records indefinitely.
- You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
- You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
- Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
Go to the "official" source when having tax questions. Bogus information can create headaches that aren't necessary.
Note that the retention period is AFTER the date of filing, not the year the filing was due, so if you file your 2007 taxes in 2011, that's 4 years, but the 3 year period starts for that return in 2011, so you have to hold them until 2014.
Junk the obvious: old newspapers, magazines, expired coupons, journals, sales papers, general merchandise cash receipts, old stationery, business cards, operating manuals you no longer have equipment for, letters from old girlfriends or boyfriends, cancelled checks, old payroll check stubs, old personal checks no longer needed,(shred them) and old utility bills that have been paid.
Tax Related Papers: Business Related should be kept at least 10 years. Personal 7 years.
Property Titles/Deeds: Keep as long as you have the property.
Automobile Insurance Documents, I would throw those away if you no longer have the vehicle.
Life Insurance and Mortgage Related, keep them for as long as you have the property or the person.
In Warranty Goods: Keep as long as you have the property.,
Someone (Dave in Logandale) is correct that the statue of limitations is three (3) years, for assessments on filed returns. Per the tax codes and regs:
Under section 6501(a) of the Internal Revenue Code (Tax Code) and section 301.6501(a)-1(a) of the Income Tax Regulations (Tax Regulations), the IRS is required to assess tax within 3 years after the tax return was filed with the IRS.
Thus, a 2010 return, filed in March 2011, is "open" for examination and potential assessment of taxes due, until April of 2014. Note well that if any fraudulent activity is discovered in that return, your entire set of past returns becomes openable for audit.
OKAY!! Then what about the outfits that buy old debts for a penny
on a dollar and try 2 collect 20 years later. And the gov't cant stop this scam?????
"It's better to have it and not need it, than to need it and not have it."
As a banker I don't completely agree with this article. You probably should keep 401k statements for at least a year if you are intending to purchase a home or real estate soon. Your lender may want a copy to prove that you have the funds. Bank statements are the same, especially if you still get paper statements. Some lenders won't take the ones you print off of the bank website without a certification from the bank. It's not hard to get them certified but it takes time and some banks may impose a fee for this service, if you've got the originals its much easier on you. Your bank statements should always be available from your bank but they aren't always free to get copies, especially if you need to go back more than a month! I would advise to keep them for at least a year, put them in a binder and shred them one at a time after 12 months.
Also if you plan on selling a home soon, copies of the utility bills can be helpful to the new buyer to see how much they may need to budget for monthly expenses.
Also my insurance agent advised me to keep at least the two previous policies for my home and auto policies. I have found it makes it easier to see rate increases and coverages changes that I may otherwise have been unaware of.
About 3/4 down the page it states in part,..."generally" keep the crap for three years.
And if you are audited for say 6 years back and get a lawyer it is vague enough to win the case in court. Typically, the IRS will not audit past 3 years unless they have a serious case against you...and if it is serious enough you lose in a court of law...
Most of us are just common everyday rainy people...
Definitely hang onto your property title deeds...cause if you have reason to leave your home and when you return to find a family residing in your home, you will lose it...now this is based on EU history of wars and chaos. I keep mine with my go bag, just in case the far left gets way out of control.. ;)
Keepm your scanned stuff on an external disc. If something happens to you computer ( and it will), you are suddenly without your important papers you stored on your computer. And what if you didn't have electricity or means to have one. (I am referring to natural disasters.)
Eventhough, I had a computer after Hurricane Katrina, I didn't have electricity to run it. I live in interior Southeast MS. All of you who don't live in AL, LA, and MS, cannot imagine what Katrina done to the interior part of MS. No one could get there to take pictures of the divastation. No one could report on it. It was like a war zone. People could only get reports of New Orleans and the Mississippi Gulf Coast. So yes it is important to keep Insurance payment receipts, Insurance policies, and make sure you have the correct papers with you, should you have to evaluate from a storm.
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