Save It or Shred It? De-Clutter Financial Records. Gain Peace of Mind.
Clutter. It can sneak up on even the most well-intentioned, organized people, and it comes in many forms, from mementos and collectibles, to clothing and electronics — and even financial records. It’s estimated that 1 in 4 Americans is concerned, and stressed, about the amount of clutter in their homes. Fortunately, there is a substantial amount of information available on how to tackle those piles of financial records, and build some peace of mind. Here are a few general guidelines on what to save, and what to shred:
Save for 1 to 3 years
Books of old, outdated cancelled checks — a blast from a less than digital past — can take up a desk drawer (or two, or three) in no time. Perhaps cancelled checks are just one of those things that no one really knows how to deal with properly, so they end up sitting in reserve and taking up precious storage space.
Regardless of how this little pileup may have happened, for those who have cancelled checks lying around, there is good news: the general rule of thumb is to only keep them for 1 to 3 years, and then shred them.
It all depends…
When it comes to organizing receipts, it’s important to sort out why the receipt was saved in the first place: was it a gift for someone from the holidays 10 years ago? Shred it. That item has long since been returned and exchanged or used and loved for the past decade. Is it for everyday, household items that don’t qualify for a tax deduction? Shred it. However, if the receipt was part of the documentation for an income tax deduction in the past 3 to 7 years, save it and store it with the appropriate copy of the income tax return.
Once the stack of receipts from holidays and tax seasons’ past are purged and organized, a good rule of thumb to observe moving forward is to keep receipts for 3 years in a designated file. Sort them annually and determine what to save and what to shred.
Save for 1 year
January is a great time to gather pay stubs from the previous year, and compare them with W-2s. If the W-2s are correct, feel free to shred that stack of pay stubs that has piled up over the last 52 weeks. Out with the old, in with the new. A little de-cluttering starts the year off right!
Save for 1 to 7 years
Generally, monthly bank statements can be shredded (or purged if the files are digital) after 1 year. Save annual bank statements for 3 to 7 years if they are documentation for income tax returns.
Save for 1 to 7 years
If utilities are a tax deduction, save those records for 3 to 7 years with copies of the appropriate income tax return. Otherwise, utility bills can be shredded after 1 year.
Credit Card Statements
Save for 1 to 7 years
In most cases, credit card statements should be saved for 1 year, and then shredded. Save them for 3 to 7 years if the statements are documentation for income tax returns. Statements indicating zero balance because the debt has been paid in full should be saved in a safe place for at least 7 years.
Record of Satisfied Loans
Save it for at least 7 years
Is that loan paid off? Congratulations! Celebrate this milestone, and then be sure to save the final statement indicating a zero balance in a safe place for at least 7 years. Some experts recommend saving these records forever.
Income Tax Returns
Save for 3 to 7 years, or maybe longer
While every situation is different, the general consensus is to err on the side of caution when it comes to saving income tax returns, W-2s, and other supporting documentation. Some experts recommend keeping them forever, and if anything falls into the “better safe than sorry” category, this is probably it.
The IRS can initiate an audit up to three years after a tax return is filed. For those who have not reported at least 25% of their income, the IRS can initiate an audit up to 6 years. So, if keeping those records forever just isn’t an option, it’s a good idea to keep income tax returns and supporting documentation for at least 3 to 7 years.
Supporting documents may include:
· Form W-2s reporting income
· Form 1099s showing income, capital gains, dividends and interest on investments
· Form 1098 for mortgage interest that was deducted
· Canceled checks and receipts for charitable contributions
· Records showing eligible expenses for withdrawals from health savings accounts and 529 college-savings plans
· Records showing contributions to a tax-deductible retirement-savings plan, such as a traditional IRA
Small business owners have additional considerations. The IRS addresses record-keeping for businesses, which is a great resource for anyone who is self-employed.
For those who just aren’t sure what their situation warrants, a discussion with their financial advisor or accountant may be in order.
Save these documents forever
Once the purging process is underway, it can really feel invigorating to throw away outdated and useless items, but don’t give in to the temptation to just wildly toss everything. There are some documents worth retaining forever. Save these documents in a secure location, such as a safe deposit box:
· Birth and Death Certificates
· Adoption Papers
· Social Security Cards
· Marriage Licenses
· Divorce Decrees
· Military Discharge Papers
· Records of Paid Mortgages
· Wills and Estate Planning Documents (Save these documents forever, but review them every 5 years as they may need to be updated to reflect life changes).
· Life Insurance Policies
· Statements for Loans that are Paid in Full (showing $0 balance)
· Credit Card Statements reflecting balance is Paid in Full (showing $0 balance)
Information for this article was compiled from the following:
Fidelity Bank has multiple local branch offices throughout Lackawanna and Luzerne counties, and our full-service Customer Care Center is at your service 7 days a week. Call or visit your local branch office today.
Daniel J. Santaniello, President and CEO, of Fidelity Bank, publishes Financially Fit with Fidelity, your guide to financial well-being, every Thursday. If you’re interested in a financial topic we haven’t yet covered or want to subscribe to our emails, please feel free to drop us a line at blog at fddbank dot com. We would love to hear from you.