Paper Records: What to Toss, What to Keep

You can deep-six most of your documents and go digital with the rest.

Worried about pitching documents that they may need at some point, many people decorate a spare bedroom with boxes or large file cabinets stuffed with old bank statements, tax returns and pay stubs. (Okay, if the stash isn't in a spare bedroom, perhaps it resides in the attic, basement or garage.) As you finish up your tax return this year, take the opportunity to clean house. With a few key exceptions -- mainly tax-related documents -- you don't need to keep all those papers. And if you're willing to use online banking and create a digital archive of crucial records, you may even be able to go paper-free.

Before you dig into those piles of records and statements, invest in a shredder to guard against identity theft. And don't skimp on the shredder, or you'll defeat the purpose of having one. Ribbon-cut models produce bands that can be taped back together. So shell out the money for a cross-cut or confetti model. We like the Fellowes Powershred DS-2 (about $100 online) for its sharp look and munching capability.

WHAT TO KEEPThe most important documents to hang on to are your annual tax returns. You should keep the actual returns forever, but you can get rid of the supporting documents after three years. That's how long the IRS has to initiate an audit. Once the time elapses, toss the records -- and shred any that reveal your Social Security number or other personal information.

Other papers to save for at least three years include thank-you letters from charities and year-end investment statements. You don't need to save your monthly mutual fund reports forever. But before you toss them, wait for the year-end statements and make sure they match up. Also be sure to keep records that show the initial purchase price for stocks and mutual funds so you can calculate your basis when you sell them. After that, you can shred the documents once the three- or six-year IRS window draws to a close.

You also need to save records pertaining to your house as long as you live in it. Records showing your purchase price, and what you spent on improvements, may come in handy when you're trying to prove the value of your home to potential buyers. Another reason to keep these papers: If you sell your house at a hefty profit (more than $500,000 for couples filing a joint return or $250,000 for single filers), certain expenses can be used to lower your tax bill. After you sell the house, keep the documents for three years.

Finally, hold on to records showing how much money went into and came out of IRAs and 401(k)s -- especially if you've made any nondeductible contributions -- so you don't overpay taxes when you withdraw the money. Keep any 8606 forms on which you reported nondeductible contributions to traditional IRAs.

WHAT TO TOSSSo what can you unload? ATM receipts, bank withdrawal and deposit slips, and credit-card receipts can go through the shredder after you've checked them against your monthly statements. Rebecca Eddy, founder of Eddy & Schein In-Home Administrators for Seniors, says one client kept every single pay stub she had ever received. That's overkill. Just keep them until you get your Form W-2. You can also get rid of paper copies of most monthly bills -- for credit cards, utilities and cable TV -- unless you need them for tax purposes.

If you need help sorting through the clutter, consider hiring a daily money manager. Daily money managers tend to have a background in accounting, finance or law, and they make house calls. You can find one in your area by checking with the American Association of Daily Money Managers. Typical cost: up to $150 an hour.

Most Popular

Are You Still Chasing the Almighty Dollar, Even Though You Have Plenty to Retire?

Are You Still Chasing the Almighty Dollar, Even Though You Have Plenty to Retire?

In our experience, many have saved enough money to retire comfortably. Yet too many worry about their money running out and want more. Maybe it’s tim…
May 6, 2021
Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs
Coronavirus and Your Money

Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs

People have lots of questions about the new $3,000 or $3,600 child tax credit and the advance payments that the IRS will send to most families in 2021…
May 4, 2021
20 Dividend Stocks to Fund 20 Years of Retirement
dividend stocks

20 Dividend Stocks to Fund 20 Years of Retirement

Each of these high-quality dividend stocks yields roughly 4%, and you can expect them to grow their payouts even more. That's a powerful 1-2 combo for…
May 7, 2021


Estate-Planning Your Stuff with T. Eric Reich
Empty Nesters

Estate-Planning Your Stuff with T. Eric Reich

What to do with the house, the vacation house and the china? We talk with a financial adviser who's got some wise counsel. Also, who makes up the so-c…
May 2, 2021
Home Upgrades that Pay Off
Smart Buying

Home Upgrades that Pay Off

Some affordable renovations recoup most of their cost when you sell.
April 24, 2021
What You Need to Know about College 529 Savings Plans
529 Plans

What You Need to Know about College 529 Savings Plans

Do you know how much you’re able to contribute or what the funds could be used to pay for? How about how contributing affects your taxes? Check out th…
April 14, 2021
37 Ways to Earn Extra Cash in 2021

37 Ways to Earn Extra Cash in 2021

We flag a wide variety of cool side hustles to earn bonus bucks to cover expenses expected and unexpected as we begin to emerge from the pandemic lock…
April 8, 2021