How to purge your financial clutter – documents & records – Liz Weston, MSN Money
You don’t really need to keep those towering piles of paper records. Here are tips on what you should throw out and how to organize what you should keep. How to purge your financial clutter – documents & records – MSN Money
You may not be ready to go entirely paperless, but chances are good you’re hanging on to a lot more dead trees than you should. Now is a great time to remedy that. After you’ve filed your tax return, you can get serious about reducing your financial clutter — now and in the future.
Here’s what you need to know:
There’s nothing special about scraps of paper. The Internal Revenue Service accepts electronic records, so you can scan receipts and download documents rather than hanging on to the paper versions. Often, you don’t even need to download, now that many financial institutions offer quick access to statements online. My bank, for example, gives free online access to my statements for the past seven years. My credit card issuers offer the same for six to seven years, while my brokerage offers free access for 10 years. Check with your institutions to see about their policies.
“Seven” is a magic number. That’s how long the IRS typically has to audit your tax return. Your biggest risk is in the first three years after a return is due; the 2010 return that’s due this April can be audited under normal circumstances until April 2014. The IRS can extend that deadline by three years, to April 2017, if it suspects you underreported your income by 25% or more. There’s no deadline if you committed fraud or failed to file a return, but we’ll assume you’re not a crook and have stayed up-to-date. If you write off a bad debt or claim a tax break for worthless securities, you need to keep proof for seven years after filing — or until April 2018, for your 2010 return.
You should keep some stuff longer.
Though you can shred supporting documents for your tax returns after the danger of audit has passed, many tax experts suggest retaining your actual tax returns indefinitely in case you or your heirs need access to the information they contain. Whether you keep scans or the actual paperwork is up to you. Also:
- Documents that pertain to an asset you own outside a retirement fund — confirmations showing the purchase price of a stock, for example, or improvements on a house — should be kept for as long as you own the asset, plus seven years.
- W-2 forms should be kept until you start drawing Social Security.
- Three tax forms relating to retirement accounts should be kept until those accounts are drained. Those include Form 8606, which helps you calculate your tax basis for future retirement-plan withdrawals; Form 5498, which shows individual retirement account and Roth IRA contributions; and Form 1099-R, which shows IRA withdrawals.
- For all loans, including mortgages, you can ditch monthly or quarterly statements once you get the year-end summaries, and you can destroy the year-end summaries when you’ve paid off the loans. However, you should keep indefinitely the final notice showing a loan has been paid off in case a disorganized lender or unscrupulous collector pretends the debt hasn’t been paid and tries to dun you.
- For insurance purposes, keep receipts and appraisals for big purchases as long as you own the items.
- Certain documents — including birth, marriage and death certificates, divorce papers and military discharge papers — should be kept for life. Learn how to obtain a CA death certificate here.
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