Record Retention – Know When to Throw Away

There are two kinds of people in the world – pack rats and everyone else. Pack rats are those people who keep items such as old bills, old bank statements, old mail – you get the gist. So when does old get promoted to “old enough to throw away”?

First, decide if there’s a reason behind such extensive recordkeeping. The two main reasons to keep documents are for tax purposes or for proof of payment. For tax purposes, the IRS requires that individuals be able to produce records proving any income, deductions or credits claimed for the last years from the date of a return. However, this length of time may be extended to six years if individuals fail to report income that is more than 25 percent of their gross income.

For that reason, it’s a good rule of thumb to keep supporting tax documentation for six to seven years. Records that fall into this category could include W-2 forms, 1099 forms, end-of-year bank statements, and any receipts related to deductions (such as family gifts, tuition, or charitable contributions).

Another reason to keep financial records is to verify payment. Unless you need to save bills for tax purposes (for instance, deductions on a schedule C), they should be thrown away once you’ve received the next month’s bill with no balance due. In addition, experts recommend that bank and credit card statements be kept no longer than a year, unless something is incorrect on the statement and needs to be challenged. In that case, keep the statement until the dispute has been resolved.

Documentation for insurance and loans should be kept a longer period than most other items. Original loan documents and loan statements should be kept until the loan in paid off. At that point, the documentation showing the loan was paid off is all you need to keep. In the case of insurance, it’s important to keep the paperwork for as long as you have the policy.

There are a few documents that must be kept indefinitely. These include wills, inheritance, legal filings, bankruptcy filings, and paperwork documenting IRA contributions and withdrawals.

If you recognize the signs of a pack rat in you or someone you love, follow this 3 step guide to recovery:
1) Drive to your nearest grocer
2) Buy Hefty
3) Use hands + Hefty to de-clutter your life!



LeAnn Carlson