Storing and Discarding Important Documents


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By David Haas, CFP®

It’s that time of year. You are getting all those tax forms in the mail: W2, 1099, 1098, 1095, etc. You probably get bank statements, brokerage statements and bills. Once your taxes are done, you will get copies of your returns to keep. When do you throw it all out? Can you ever throw it out?  What financial documents do you need to keep? My dad died in 2013 and not only did I find every bill, bank statement, and tax return from the past 50 years, I also found bank statements from my grandparents. My parents had packed every year in a supermarket bag and thrown them into a large closet. Is there a better way? There sure is!

Electronic Filing for Financial Documents

The best way to keep all this stuff is on your computer. You don’t need the paper, and everything will be easier to find and take up a lot less space if it’s on your computer. A lot of statements are available online now, so you don’t need a scanner for them, but there will be some things you still need to scan. Luckily, doing this is easy and I will explain how.

Get a Scanner

The printer you have already might scan, but if you don’t have one, I recommend buying a multifunction printer/scanner which has a duplexer in the feeder. The feeder will feed pages so you can scan multiple pages without putting each one into the scanner individually. The duplexer in the feeder will actually flip the pages so you can easily scan double-sided pages with no intervention into one document. (For related reading, see: Should You Store Your Estate-Planning Documents Digitally?)

Use Your Smartphone

Maybe you don’t get very much paper you have to scan or you are on the road a lot. You can use the camera on your phone or tablet instead of a scanner and there are several apps under $10.00 that do a great job. It won’t be as fast or easy as a scanner, but it works.

Create an Electronic Filing Cabinet

Create an electronic filing cabinet. You can think of it just like a physical filing cabinet, except you have folders instead of files. Use a system which is logical and will allow you to find things. I use a top level of folders by year and then within each year, I have a folder for bank accounts, another one for investments, another one for taxes, etc. You can go as deep in hierarchy as necessary to keep yourself organized. 

What Financial Documents You Should Keep

So, now you have a method for keeping your documents. What do you actually keep? I recommend keeping the following:

  • All bank statements
  • All brokerage statements
  • Your insurance policies and renewals
  • Your credit card statements (so you can keep track of what you bought when and for warranties)
  • Your pay stubs (especially the last one of the year)
  • Most current utility bill (No reason to keep them all unless you might need them for taxes)
  • Records of auto service and repairs
  • Records of home improvements
  • Receipts and thank you letters from charity donations
  • W2, 1099, 1098, and all other tax-related forms (For related reading, see: Tax Documents You Should Always Keep.)
  • Copies of your tax returns
  • Explanation of benefits from your insurance 
  • Medical bills or receipts

This is probably not a complete list, but you get the idea. Even though your bank or other financial institution keeps your statements online for you, I don’t trust that you will always have access to these documents when you need them. So I always download them to my own computer and I suggest you do the same. If you still write any actual physical checks, I recommend downloading images of the cancelled checks. Very handy in the case of a dispute or if you have to prove you paid for something. The banks all destroy these images within a few months.

How Long to Keep Documents

Keep your tax-related records for seven years. The IRS has six years to audit you if it thinks you under-reported 25% or more of your income. You should keep bank statements and credit-card statements as long as you have the items you purchased on the statements. Certainly for at least seven years. I recommend keeping pay stubs, or at least the last pay stub of the year until you retire. 

Keep car-related documents for as long as you own the car. Keep insurance documents while you have that insurance policy, but I discard old auto policies after about three years. If you get into an accident, keep a copy of your policy for the year you were in the accident forever. Keep your medical bills and insurance EOBs for five years both for tax purposes as well as billing issues with your medical providers. Keep home improvement records for seven years longer than you own the home.

Keep vital documents like birth certificates, marriage certificates, divorce decrees, and wills in a fireproof safe or safety deposit box at your bank. Keep life insurance information there too. It is often useful to have copies of these documents at home. These copies can be electronic too! (For related reading, see: Protecting Your Financial Documents From Disaster.)

How to Discard Financial Documents

After reading this article, you probably have a lot of paper you want to throw out. Wait! Don’t throw these important documents in your garbage because it’s a security risk. Instead shred or burn the documents. I own a shredder at home and another one at work, but if you don’t have access to a shredder and don’t want to buy one, there are other choices. Many towns and counties have shredding services available. Save up your documents and bring them to the shredding event. If you have a wood fireplace, old bank statements make great fire-starting material!

(For more from this author, see: Buying a Car? Read This Financial Advice First.)

This article was originally published on Investopedia.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Wealth Management


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