Hoarder Alert: Know When to Toss Financial Docs

Many of us swear that we’re not hoarders, and in many respects, we’re not…until it comes to hanging on to old financial records of all types.

The Motley Fool shared this sort kind of information with their readers recently, and because the Fool seemed to have targeted me directly, I decided to pass along some of their thoughts.

Tax Returns

After reviewing the Fool's remarks, I did a quick inventory of my file room… soon realizing that when it comes to retaining financial documents, I deserved the target on my back. I have federal tax returns going back to the year Teddy Roosevelt and his Rough Riders charged up San Juan Hill in the late 1800s, forcing Cuba’s Spanish overlords off the island. That’s an exaggeration, of course, but I still have all of ‘em, and I’m not a spring chicken.

One early return documented that I swept floors for Oklahoma State University for $.50/hour. They also charged me $4 per hour for tuition, so I suppose it evened out. Generally speaking, the IRS suggests that you keep returns (and supporting documents) for three years; six years if you overlooked reporting certain income; seven years if you file a claim for a loss from worthless securities or bad debt deduction; and indefinitely if you filed a fraudulent return or didn’t file one at all. And by the way, if you’re employed by others, keep paycheck stubs through the end of the current year as a check against your employer’s W-2 form. Uncle Sam is watching.

Mortgage Must-Keeps

Keep mortgage or mortgage refinance documents for as long as you own your home. Prior to selling a home, keep paperwork related to its purchase and of any major work to improve the home (to support the home’s cost basis at point of sale). After a sale, hang onto those prior records along with records related to its sale for at least six years.

Insurance Policies

Keep life and other insurance policies indefinitely (as long as they are in effect). Speaking of insurance policies, keep receipts for all costly acquisitions in case of theft or catastrophic loss for purposes of confirming the purchase price to skeptical insurers.

Estate Records

Keep all estate-related items such as IRA contributions and other pension-related records indefinitely… including of course, your last will and testament, durable powers of attorney, medical powers of attorney, directives to physicians and HIPAA releases.

Medical Docs

If you have included a medical tax deduction on your return, the IRS allows itself up to seven years to request documentation related to your health insurance records. These same records and explanation of benefits (EOBs) might also be useful in sorting out after-the-fact difficulties with medical service providers. BTW - an explanation of benefits is not a bill. It is dispensed to both patient and provider as a means of identifying how a claim is processed and what amount may be owed by the patient.

Monthly Statements

If you verify bank and credit card statements upon receipt… if you balance your checkbooks periodically… and if you have online access to these statements, there is really no reason to keep the monthly paper documents. Certainly not for more than one year.

Trade Confirmations

Unlike bank and credit card statements, trade confirmations and brokerage statements should be kept as long as you own the securities they represent. This is how you will ultimately document your basis in the securities you own when sold. Remember, Uncle Grabby is watching, and occasionally he will inquire about tax basis documentation.

Titles

Titles to vehicles and other valuable assets (i.e., real estate, etc.) including documentation of improvement and/or insurance claims on these properties should be kept for as long as such assets are owned.

Shred the Evidence

In summary, don’t be a financial documents hoarder, but do keep certain documents that will prove useful in the conduct of your family’s financial dealings. But in this age of hacking and meddling, once you decide to discard important financial documents it’s important to remember that more than Uncle Grabby is watching. There is an industry of ne’er-do-wells out there looking for every opportunity to syphon off your various account numbers, Social Security number, date of birth, and other identifying information. So, consider shredding all discarded documents. And, for your own purposes, back up all important digital documents and store paper versions of those documents you choose to retain in a safe place to avoid theft or catastrophic loss.