Financial Spring Cleaning

Am I the only one who has a growing pile of papers on top of my desk waiting to be filed? Didn’t think so. It’s that time of year again — where in preparation of filing taxes, our houses seem to be taken over by credit card statements, insurance policies and 401(k) paperwork. The good news is that hanging onto every single one (or even most) of these paper documents isn’t necessary. Here are guidelines to the docs you should keep, shred and toss as you get your financial spring cleaning on.

Taxes

The IRS suggests keeping the documents related to filing your taxes for a minimum of three years. After that, they are safe to shred. However, if you accidentally make an error or somehow under-report your income, you should hold on to any documents related to those mistakes for at least six years, suggests Certified Financial Planner Jill Schlesinger, Senior Ambassador for the CFP Board. “The most efficient way to handle all of this is to file stuff electronically and put it on a hard drive that you can keep safe,” says Schlesinger.

Receipts

Now onto that shoebox hiding in your closet. Receipts for deductible expenses can be scanned (and again, kept for three years) then shredded. Digital copies are acceptable to the IRS, as are credit card statements. If you receive a year-end summary from your credit card company, that allows you to dispense (again shredding is best) with the monthlies. If you haven’t done so already, consider signing up to receive your statements electronically. That’s one way to shrink your paperwork pile and it’s environmentally friendly. Win win.

Investments

One thing you can toss? Paper records of your investments. When it comes to keeping records, you can usually count on your brokerage firm to be your record-keeper. But it’s still a wise idea to ask how far back the firm keeps those records before they make it into the garbage, says Certified Financial Planner Frank Paré, president of the Financial Planning Association. For your retirement plan, “you should keep the most recent 401(k) statement, and unless there is some sort of rollover, there is no need to keep old ones,” says Paré.

Insurance and Assets

Insurance policies — for life, health, auto, home, disability, and any other type of coverage — need to be kept for as long as you own the underlying policies. The same is true of documentation relating to other assets — homes and cars — which you want to hold onto as long as you have the home, car or other asset itself. If you are doing big home renovations, Schlesinger also says it’s helpful to keep those receipts of the work that’s being done. If the work is making a big improvement, that could change the cost basis of your home which could impact the taxes you owe if and when you sell it.

Anything Else?

If you or your aging parent is eligible for Medicaid, you will probably want to keep at least five years of bank statements, says Schlesinger. And there are some documents you’ll want to keep forever, preferably in a fireproof safe (you’ll want them safe, but accessible): Wills, trusts, certificates (birth, marriage, divorce), child support, alimony payment records and military records are all on that list.

With Hattie Burgher