The Life Transition Blog

A Daily Money Manager’s Advice: What to Keep and for How Long

Dear Sheri: I have boxes and boxes of old files cluttering my closets and I’d like to clean out but I don’t know what I’m supposed to keep. Help! -- Fred

Dear Fred:

First of all, good for you for wanting to de-clutter your space! I know that you are not alone in wondering what you need to keep and for how long as I often get this question from my clients. I’ve covered the most common questions below, but when in doubt DON’T THROW IT OUT unless you are sure you can obtain the records electronically from the bank, insurance company, etc!

Tax returns and supporting documents – In general, anything to do with your taxes should be kept for at least seven years. The IRS has three years from your filing date to audit your return if it suspects good faith errors and you have the same amount of time to file an amended return if you find a mistake. However, the IRS has six years to challenge your return if it thinks you underreported your income by 25 percent or more. If you fail to file a return or filed a fraudulent return there is no limit on when the IRS can come after you. Specific items you should keep in addition to your tax returns themselves include documentation of income, alimony, charitable contributions, mortgage interest, and retirement plan contributions and any other deductions taken.

IRA contributions – If you made an after-tax contribution to an IRA, you will need to keep your records indefinitely to prove that you already paid tax on the money when it is time to make a withdrawal.

Retirement plan statements – Keep the quarterly statements until you receive the annual summary and if everything matches up, you can shred the quarterly statements. Keep the annual summaries until you close the account.

Bank records – Keep any checks or statements related to your taxes, business expenses, home improvements, or mortgage payments.

Brokerage statements – You must keep these until you sell the securities covered by them to prove whether you have capital gains or losses for your tax return. If you hold stocks or bonds for many years, you will need to keep the statements.

The exception is if the cost basis and date of acquisition is listed on the statements. In this case, you only need to keep the year-end statements to support your tax return.

Bills – Keep bills until you receive the cancelled check or credit card statement showing that your payment was received.

Be sure to keep bills for big purchases like jewelry, furniture, art, appliances, cars, computers, etc. so that you can prove the value of these items to your insurance company in the event they are lost, stolen, or destroyed in a covered disaster such as a fire.

Credit card receipts and statements – Keep original receipts until your statements come and then match them up. You can then discard the receipts. Keep the statements for seven years if they document tax—related expenses. Paycheck stubs – Keep until you receive your annual W-2 form from your employer(s) and make sure the information matches. If it doesn’t match, request a corrected W-2 from your employer(s).

House/condo records – Keep all records documenting the purchase price and the cost of all improvements, as well as records of expenses incurred in selling and buying the property for seven years after you sell it.

Medical Bills and Records – Keep all medical bills and supporting documentation such as cancelled checks or credit card statements until you are sure that the bill has been acknowledged as having been paid in full by you and/or your insurance company.

If you are deducting unreimbursed medical expenses on your tax return, keep all supporting documentation as discussed above.

Remember to keep all health-related bills including dental, eyeglasses or contact lenses, hearing aids, and over-the-counter medications, to name a few.

Using the above guide, you should be able to clear out the bulk of your saved paperwork and then establish a system for keeping up with things over time.

Remember, you can obtain many of theese documents in electronic format, or you can scan them and archive them electronically.

If the task seems overwhelming, you might want to consider the help of a daily money manager or professional organizer.

From time to time in this space Sheri will answer your questions if you email them to her at sheri@LifeBridgeSolutions.com.
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