Your most valuable documents, like passports and birth certificates, are pretty obvious to identify, and the vast majority of people know to store these in a safe and secure place. Financial files, on the other hand, can be a little tricky. While computers and the Internet have made digital recordkeeping a breeze, some paperwork is best kept on hand at all times.
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Insurance, Estate and Pension Papers
First, in addition to any electronic copies you have, store hard copies of estate plans, life insurance polices and any pension paperwork from your employers. These documents are critically tied to your and your family’s financial wellbeing. You may need to retrieve these files on short notice, so keep them in a fireproof safe in your home for quick and easy access.
When it comes to taxes, the rule of thumb is to keep your actual returns for at least three years, since the IRS has a statute of limitations of three years to conduct an audit. If serious errors are found, the government agency can examine your last six years worth of returns.
But you may want to keep your returns forever in the unlikely event there is an error with your Social Security benefits. For example, when you begin to collect your Social Security income you may discover a miscalculation due to an incomplete earnings record with the Social Security Administration. This is not a terribly common problem, but if it happens to you, it could result in a lower monthly Social Security check.
Your tax returns will be your primary defense. You can check ahead of time to see whether your benefits are being calculated correctly by registering online at SSA.gov to view your estimated earnings and benefits dating back to the first year you filed your taxes. If you spot an error, contact the SSA at 800-772-1213.
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Next, if you own any property, keep records related to the purchase – like the deed and closing statement - as well as receipts for any improvements. Some modifications, like energy-efficient upgrades, can lead to tax credits, and potential buyers may want to see documentation related to major renovations.
Don’t get rid of original loan documents, either. Whether for a home or car, hang on to them for as long as you own the item in case there’s ever any confusion from the lender about who owns the loan and the amount.
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What Can You Toss?
If you’re hanging on to every receipt, pay stub or cable bill, there's no need. After reconciling receipts with checking account and credit card statements, feel free to shred them along with any old utility statements. There’s also no need to save ATM receipts or deposit slips since banks typically offer digital archives.
And once you receive your W-2 or 1099 for the tax year, clear out your pay stubs, except for the most recent few if you plan to borrow money any time soon. Lenders may request a recent pay stub or two for home loan applications.
Have a question about which financial documents to keep? Connect with me on Twitter @Farnoosh and use the hashtag #finfit.