Financial Cleanup: What to Keep and What to Shred

For me, this time of year is an opportunity to clean out the physical and electronic financial clutter in life, and to attend to some important to-dos. I have written these columns over the years because these evergreen ideas never get old. Let’s start with what to keep (and for how long) – and what to shred.

Tips on financial cleanup

Tax returns

We are in the middle of tax season, which means that you may have stumbled upon a box of returns from the 1990s. The good news is that for financial cleanup you can shred anything from the “Friends” era.

However, the IRS can include returns filed within the last three years in an audit. If they identify a substantial error, they may add additional years, but the agency usually does not go back more than six years.

Therefore, keep your returns and all supporting documents for six years, just to be safe. If you work with a tax preparer, ask whether they will maintain electronic copies of all returns filed. Everything before that should be shredded— and no cheating on this because scammers would love your valuable personal confidential information.

Bank/investment statements

You can usually access statements for the past year electronically, but it may be helpful to highlight any purchase and sales confirmations for tax purposes.

To keep things tidy, create either a physical or electronic folder called “tax prep,” so that you can easily access the information next year. NOTE: If you or a relative may be applying for Medicaid, many states require that you show five years’ worth of statements.

Credit card/utility/phone bills

Unless you need to reference something for tax or business purposes, or for proof of purchase for a specific item, you can shred these after 45 days. Like the bank statements, flag what you may need for taxes, including charitable contributions.

Real estate closing / mortgage / home improvement docs

That pile of documents that you signed when you purchased your home seems positively 1985, but some of them are important to retain for as long as you own the property. They include:

• Property deed: Proves that you own your home and will be necessary if/when you sell your property.
• Home inspection / Home warranty / Survey: Can be useful for future projects.
• Mortgage documents: Keep the promissory note, deed of trust, proof of title insurance for the life of the loan. While you can request copies of the originals, replacements can take time and effort, so keep them in a safe place.
• Home improvements / major purchases: These may be necessary if you need to make an insurance claim or for tax purposes when you sell your home (some improvements can increase the cost basis on your home, which can minimize a potential capital gains tax exposure).

Keep forever (which is a long time!)

If you maintain paper versions of any of these, make digital copies and then store them in a fireproof safe.

• Birth and death certificates
• Social Security cards
• Marriage licenses and divorce decrees
• Military Discharge papers
• Estate documents

While you’re at it … check your credit record/score

While many people have access to their credit scores through their credit card companies or banks, now is a perfect time to access AnnualCreditReport.com for your FREE copy.

If you identify an error on your credit report, you should contact the credit reporting company (Equifax, Experian, TransUnion) and put in writing what you think is wrong, why, and include copies of documents that support your dispute.

Related: Retirement and Credit Score: The Hard Truth

Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com.

©2024 Tribune Content Agency, LLC