At least once a month, you get statements from a wide variety of vendors, either through email or paper mail. Did you know that, by law, you need to keep some of these records for a certain amount of time?
And once you no longer need them, what’s the best way to dispose of them? Those pieces of paper contain a huge amount of personal information.
Also, what’s the best way to store these records?
If you have a business, you will have additional requirements, but this article will be geared towards consumers rather than businesses.
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How to Organize Your Bills
Get three file boxes or a three-drawer filing cabinet and a stack of file folders. Sort the bills into biller and year. Check through each bill to see if it contains tax related purchases. One is the current year, one is shred by date, one is tax related.
While some of the records only need to be kept for one month, you’ll keep them for slightly longer (unless you really like doing paperwork).
In the current year box, you’ll have files for this year’s tax information, credit card statements, insurance policies, bank statements, pay stubs, investment statements, mortgage paperwork, medical bills, financial records, and utility bills. You’ll want to label them clearly!
- Credit card statements and receipts
- Car insurance policy
- Home insurance policy
- Bank statements and slips
- Pay stubs
- Investment statements
- Mortgage statements
- Home improvement receipts
- Medical bills
- Utility bills
- Retirement plan statements
- Personal records (these should be kept in fireproof box)
- Marriage, divorce, adoption, birth, wills, paid mortgages, keep until death
- Loan receipt payoffs, keep 7 years
- Shopping receipts
- Cash receipts – shred as desired
- Credit card receipts – match to bills and shred
- Large ticket items – attach receipts to user manual or warranty information
As you sort through those piles of bills and shoe boxes of receipts, place them in the correct file.
In the shred box, you will have roughly the same files with a label along the lines of “Name of Credit Card Statement, 2019, shred 2021” etc.
- Credit card statement, 2019, shred 2021
- Insurance policies, shred as desired
- Bank Statements, 2019, shred 2021
- Pay stubs, shred as desired
- Investment statements, 2019, shred 2021
- Medical Bills, 2019, shred 2021 unless planning to deduct
- Utility Bills, 2019, shred 2021 (if you have a home business, you will keep these)
- Retirement plan quarterly statements, 2019, shred 2021
- Paid Loans, 2019, shred 2027
Unless you own a serious shredder, you’ll probably find it easier to shred all your documents once a year. Do not throw away these items. They contain enough personal information for a thief to steal your identity.
In the Taxes box, you will place your filed tax returns and all paperwork associated with it. You’ll also need a file titled W2s and others for past tax filing and related paperwork.
- Tax receipts, 2019, shred 2027
- Bank statements related to taxes
- Credit card related to taxes
- W2s (remove each year and place into W2 save file)
- Medical bills if planning to deduct
- W2 file, do not shred
- Investment annual statements, shred after sale of investment
- Mortgage paperwork, shred seven years after sale of house
- Home Improvement receipts, shred seven years after sale of house
- Mortgage statements, shred after sale of house
- Annual Summaries, shred after retirement
- Roth IRA contributions, keep to prove tax status
Now that you have everything set up and you are sorting through your receipts, let’s take a look at how to handle each file individually.
How Long to Keep Credit Card Statements
Technically, you only need to keep most credit card statements for 60 days, that’s according to Investopedia. If you are incredibly organized, shred them after 60 days. If your statements have tax related purchases on them, you will keep for 7 years.
Each month match your monthly statements against your receipts and for accuracy. Separate the statements and receipts into three categories. One is statements and receipts that are tax related; the second are receipts for miscellaneous items, and the third are all other statements.
Place the first pile into the labeled file in the tax box. Place the second into the shred file in the shred box. Place the third into a labeled file in the current year box. When the current year ends, place that file in the shred box.
How Long to Keep Tax Returns and Tax Receipts
Keep your tax returns for seven years. The IRS can audit for good faith errors up to three years, and six years if they think you have underreported your income, or unlimited if investigating fraud.
Keep your W-2s until you begin earning Social Security.
Place the tax returns in the tax box. Shred then in 7 years, so tax records from 2019 are shredded in 2027.
How Long to Keep House and Car Insurance Policies
Shred the old policies when you receive new policies.
Place in the current year box. Move to the shred box when you get a new policy.
How Long to Keep Bank Statements
Keep your paper bank statements for 1 year unless they contain tax related information, then 7 years.
Keep your paperless statements for 7 years – they don’t take up space, except on your hard drive, and you may want them for a quick reference.
You can shred ATM receipts, deposit and withdrawal slips after reconciling.
On a monthly basis, reconcile the slips against the bank statements, then shred the slips. Separate paper statements into non-tax related and tax related. Place the tax related ones into a labeled file in the tax box.
Place the rest of the statements in the shred box and shred in one year (2019, shred 2021).
How Long to Keep Pay Stubs
Keep your pay stubs for a year. Match them to W-2 and then shred.
Keep the pay stubs in a file in the current year box. When you receive the W-2, match them and then shred the pay stubs. Place the W2 in the tax box. Keep W2s until you begin collecting Social Security.
How Long to Keep Investment Statements
Keep the yearly summaries for as long as you own the security, plus 7 years. This provides you with capital gain or loss for your tax returns.
Monthly statements, you can shred them monthly or after one year.
Place monthly statements in the current box. After the year has ended, place them in the shred box labels “Investment statements 2019, shred 2021.”
How Long to Keep Mortgage Statements
Keep all your paperwork regarding the purchase of your home until you sell the house plus 7 years.
Keep all your home improvement paperwork and receipts until you sell the house plus 7 years.
Keep any of the mortgage statements until you sell the house, then shred them.
How Long to Keep Medical Bills
Keep your medical bills for one year unless you plan to deduct them.
Start in the current box, move them to the shred box at the end of the current year, then shred them at the end of the next year. If you plan to deduct them, place them into the tax file.
How Long to Keep Financial Records
Keep your retirement plan quarterly statements for one year.
Keep the annual summaries until retirement.
Keep your Roth IRA contributions until retirement to prove tax status.
Store them in shred on the schedule.
How Long to Keep Utility Bills
Hold onto your utility bills for a maximum of one year unless you have a home business. If you have a home business, store them in the tax file for that tax year.
How Long to Keep Personal Records
Safely store any of your personal records like wills, marriage and divorce certificates, birth and death certificates, automobile titles, security ownership documentation, mortgage and loan paperwork, passports, etc. in a fireproof box (hard earned hint: place some desiccants from pill bottles or frozen items in the file box! The box can retain moisture and mold really likes passport paper.)
Keep these these documents until you die. Your heirs will either shred or use them to prove a will.
How Long Should You Keep Receipts
Keep your tax related receipts for seven years.
Keep all the home improvement receipts like sale of house.
Keep your large ticket items until returned or you need for the warranty.
Shred all other documents after reconciling with bank statement or credit card.
What Is the Safest Way to Dispose of Old Bank Account Statements?
The single safest way to dispose of old documents is to cross-shred them. Cross shredding not only cuts the documents into strips but then cuts then into miniscule pieces of paper.
It is also sometimes worth the extra expense of hiring a service to turn your personal information into confetti.
Banks and credit unions may offer an annual document shredding service.
Hard drives and other computer related storages devices can also be shredded. Even if you erase a hard drive, a knowledgeable thief may be able to resurrect the data.
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