Spring Cleaning Means Shredding
We hope you are looking forward to a well-deserved mental break with the tax filing deadline coming up. Spring cleaning is on the brain – we often get asked by clients, “how far back should I keep my financial documents?” Whether you are inundated by paper files or just want to avoid getting there, let’s walk through some general recommendations.
We have enclosed a helpful worksheet from our partner fpPathfinder. To use it, start by checking which sections do or do not apply to you. Then you can set aside the suggested documents. We’ve provided some additional notes below to help you narrow down what to save.
Click on image - links to full document.
Tax Documents
Along with the tax return itself, supporting documentation like W-2s, 1099s, expense records, etc. should be kept. Your state of residence may impact this as well – for example, Oregon’s statute of limitations for an audit is three years, and Washington’s is four.
If you have a Roth IRA, each May a form 5498 is mailed to you by your account custodian showing how much you contributed that year. If you haven’t yet turned 60, this form is very helpful in case you pull funds out, as you can avoid paying taxes if you can prove the withdrawn funds are contributions.
Legal Documents
If you have lost your Social Security card, a new one can be requested easily online via the official Social Security Administration website at SSA.gov. Do not use any other site to request a replacement card! These documents should not travel at all unless needed – consider a home safe or safety deposit box.
Do you have an estate plan? If so, these should not live solely in your safety deposit box, which requires a court order to access if you die or become incapacitated. Consider giving copies to your financial advisor (we are happy to hold documents in our electronic filing cabinet) and future executors or trustees, and make sure your loved ones know where these documents live in case they are needed.
Financial Statements
Bear in mind that many of these statements are accessible online or can be requested through our office if you are a current client. We are digital packrats both by preference and by records requirements!
If you have very old stocks or funds (purchased before 2012) that you hold in an after-tax investment account, keep any records related to their purchase. If you sell these down the line, they could be helpful in determining cost basis.
If you make contributions to your IRA or Roth, you want to keep form 5498 into perpetuity. And if you do Roth conversions, or make backdoor Roth contributions, form 8606 is important as well. This was already covered in the tax document section.
How and where should I keep my documents?
This is the second most popular question we are asked. We recommend keeping records in two different places to protect from fire, flood, or burglary. Scanning documents electronically can be helpful, and services exist to take care of the legwork for you, but if you lose your USB drive or your computer dies, you’ll be just as out of luck as if your paper records are stolen. Backing up in multiple places is important. A safety deposit box will be your friend, though we recommend keeping estate planning documents in your home and making sure your loved ones know where they are.
How should I dispose of my documents?
Once you’ve made the decision on what to keep and where, you may find yourself with a whole lot of surplus paper covered in account numbers, Social Security numbers, and other sensitive information. We absolutely recommend shredding these, rather than recycling them, to protect against identity theft.
For our friends in the Portland area, we will be ordering extra space through our shredding provider and will have special availability through the end of April if you would like to drop off documents to shred. We can accommodate up to two boxes per household at this time. Our physical office is open Monday through Thursday, 8am to 5pm, and we recommend phoning ahead to confirm we’ll be ready to receive you!