Karen recently wrote to ask for some help with moving. She doesn’t need help finding movers or even finding a new place to live.
Instead, like so many of us, Karen needs help going through a mountain of household paperwork that has accumulated during her tenure in her house. Since she doesn’t know what to keep and what to throw away, she’s made the choice most of us make: keep everything and sort it out at some unnamed date in the future.
“What is the time frame for keeping paid utility statements, bank statements, mortgage statements, credit card statements, and other bills or receipts? Should we keep this information for a few months or years?” she writes.
While a simple filing system is inexpensive to purchase and easy to put together, it can quickly get out of hand if you don’t purge unnecessary documents at the end of the year.
Just after tax time is an excellent time to purge what you don’t need from prior years. Just remember to cross shred anything that contains personal information, such as social security numbers, bank account information, credit card numbers, your name, address or telephone number.
Here’s a quick look at what to keep and what to toss:
Federal and state tax returns: Keep your tax returns forever. The IRS can do an audit on your return up to 3 years after the filing date, and up to 6 years, if they suspect fraud (as opposed to an error).
Investment information: For tax purposes, it’s important to know when you bought or sold an investment so you can calculate your profit or loss. You should keep info on the purchase of an investment until you’ve sold it, and then you may need to attach the receipts to your tax return. If you receive a year-end statement from your investment company, you may be able to use that as evidence of your profit or loss. After six years, you can shred all of the other documents.
Bank statements: If you’re audited by the IRS, you may need to prove what money went into and out of your checking and savings accounts. Bank statements and checks that have cleared (or photocopies of checks, if your bank sends you a sheet with miniature versions of your checks paid) should be kept for at least 7 years. Then, shred everything.
Retirement account statements Keep your active retirement account statements in a file or three-ring binder. You’ll want to hold onto these for as long as you own the account. Three years after you close the account (either by liquidating it or transferring the cash to a self-directed IRA), you can shred the documents.
Mortgage/ Home equity loan monthly statements Keep your monthly statements for a year after you’ve paid them. Once you receive you annual statement, you can shred your monthly statements for the prior year. And, make sure you keep the annual statements. You’ll need them for your tax return.
Property tax statement Keep this. You’ll need it to complete your tax return.
Home purchase/sale records Keep these for at least seven years after you’ve sold your current home.
Insurance policies Keep all of your insurance policy paperwork for at least three years after cancellation of the policy. After three years, shred all documents that contain your personal information, such as your name, address, phone number and social security number. The other documents can be tossed.
Medical records Keep your medical records for one year after the insurance adjustments have cleared and the bills have been paid. If you have extraordinarily high medical bills, and will be claiming a deduction on your federal and state tax return, keep the medical bills for 7 years after you file the tax return. Then, shred everything that has personal financial information on it.
Credit card receipts Toss after making sure your receipts match your credit card statement. Shred any receipts that contain your full credit card number.
Credit Card Statements Make sure all the information is correct, then shred. If you sign up online with your credit card company, you can access your statements electronically for up to 6 months after the payment is due.
Household receipts Toss after paying the bills. If you enter receipts into an electronic financial software program, toss after you log your payments.
Utility bills Shred after payment.
ATM receipts Shred after you make sure the amount you withdrew or deposited matches the amount shown on your monthly bank statement.
Student loan statements Shred after you’ve paid your monthly bills. Keep the annual statements (that tell you how much principal and interest you’ve paid during the previous year) until you’ve paid off the loan.
Airline boarding passes Toss after you confirm you got the miles for the trip.
Extra checks from closed bank accounts If you have extra checks lying around from bank accounts you’ve previously held, be sure to shred them.
Shredding is an excellent way to protect your identity from being stolen. Another good way is to start having your bills sent to you through email rather than snail mail. With email, there’s little chance someone can rifle through your mailbox and steal a credit card statement. (Make sure you choose an email password that would be difficult, if not impossible, for someone to guess.)
Published: Apr 16, 2004