Save or shred? When you should keep financial documents

Are you a pack rat or a purger when it comes to personal documents? The best approach is somewhere between the two extremes. Try these suggestions for a sensible but streamlined way to manage your paperwork.

Keep for a short time

Ensuring that you have these records until they are verified can provide proof of the transaction until it's officially posted.

• Utility bills ― Shred or delete after verifying payment on your bank or credit card account.
• Debit/credit card receipts ― Keep until you've checked them against your monthly statement.
• Bank statements ― Consider printing out last month's statement in case of a data breach so you can prove your balance. Shred the old statement when you print your newest one.
• Retirement plan statements ― Keep quarterly statements until you receive your year-end statement.
• Home, auto and umbrella policies ― Keep until you get your new policy. For auto insurance, most states accept electronic versions of your insurance card, but it may also be smart to keep a printed version in your glove compartment.

Keep for next year's tax season

Saving your important papers through the year and keeping your records organized will make tax preparation that much simpler. Here is a sampling to make tax time easier.

• Proof of income ― dividends, interest, bank statements, brokerage statements, W-2s, mutual fund statements and 1099s.
• Deductions - medical and dental expenses, child care and charitable giving.
• Receipts ― invoices and mileage logs.
  
• Residential ― closing and tax documents.

Keep records for IRS recommended period

In general, tax returns can be examined by the IRS for up to three years after filing. However, that period can increase in certain situations. For example, it can increase to six years in cases of unreported income that is more than 25% of the gross income shown on the tax return and seven years if a claim was filed for a loss from worthless securities. The period can extend indefinitely in cases of a fraudulent return or when no return was filed. The IRS provides a list of recommended periods based on a taxpayer's situation.

Naturally, you must be able to produce all supporting documentation. The good news? The IRS will accept legible electronic records, so consider copying everything to a DVD or flash drive and store it with your "keep forever"documents. (Don't forget to delete any tax-related records from your hard drive for security reasons after saving and storing copies appropriately).

Keep important records forever

Because photocopies or scanned images of legal papers are usually not valid, store originals of these:

• Marriage licenses, divorce and custody decrees
• Birth, adoption and death certificates
• Wills, trusts and financial and medical powers of attorney
• Passports and citizenship papers
• Military records

Keep documents while you own the asset

• Real estate ― property abstracts, deeds, mortgage documents, closing documents, insurance policies and receipts for home improvements.
• Vehicles ― titles, purchase or lease documents and auto insurance policies.
• Household ― receipts, warranty certificates and operating instructions for household items.
• Financial ― investments, stock certificates and retirement plan records.

All safes are not the same

When considering a safe, there are various factors for usage to consider such as location, contents and type of lock. When storing documents or media, the type of safe selected is very important should disaster occur. Burglar, fire and document safes have various ratings. Looking for the Underwriters Laboratory (UL) sticker may also help during selection since they have been testing safes since 1923 and certify many as either listed or classified.

• Burglar safes are rated on their construction and how long they can withstand tampering attempts.
• Fire safes are rated for how long they can withstand excessive heat and maintain the quality of the contents within the safe. If you want to keep out moisture, the seal on a fire safe will keep out the day-to-day moisture. And during a fire, the seal expands keeping out fire, smoke and water.
• Data safes are rated at a lower temperature than fire safes since data can be destroyed at a lower temperature.

Scan and save digitally or shred

Unless you must retain originals of these documents for business purposes, the following space-wasting items can be stored digitally and/or shredded each month.

• ATM receipts
• Bank statements and paystubs
• Medical, utility and credit card bills

Go paperless when possible

Many of your recurring expenses can become paper-free transactions, eliminating the need to write checks or buy stamps. You can even choose to receive automated reminders so you won't overlook due dates. To protect your private information, sign up for electronic billing on encrypted websites that have the "https://"prefix. And to save even more trees each month, opt out of junk mail lists. The Federal Trade Commission recommends contacting the Direct Marketing Association to reduce unsolicited mail. Other services, such as Catalog Choice and Do Not Mail, also may help reduce the amount of junk mail you receive.

While you're clearing out the paper, it may be a good time to update — or create — a home inventory.