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SHOULD IT STAY OR SHOULD IT GO? HOW TO DECIDE WHICH DOCUMENTS TO KEEPAccording to financial guru Suze Orman, tidying up your financial paperwork is not only gratifying from a a housekeeping point of view but actually helps you to connect with your finances and to take control of your financial life. Here are some simple steps to spring clean your office and paperwork, and, best of all, you may even be able to get it done while watching a nice, long movie on a rainy weekend.? As you gather up all your paperwork from all the corners of your house and garage, for the moment it may seem like you are making a bigger mess than you are solving; but, in the end, you will have truly "lightened your load" and organized yourself so you know exactly where you stand financially.Part of the challenge may be that you don't have space for a full scale office, which is why your papers wound up scattered in the first place. The reality is that you don't need a ton of room, nor do you need to spend a fortune on fancy organizing systems.? What you do need to do, however, is to choose a system that is so intuitive that you will consistently use it, otherwise in six months you will be back at square one.?Banker's boxes are fine for documents that you don't need to refer to often but need to keep (like documents for an executed estate that need to be kept for a set period of time). They don't work particularly well if you have more documents than will fit in one box comfortably, since you will need to access the box frequently to file and will grumble (and not use them) if they are stacked.? Decent and inexpensive locking file cabinets are available from office supply stores or? from used office furnishings dealers, like Jamesville.in Rancho Cordova, and if you don't have office space, they will fit in most closets.? I have a lateral file cabinet I picked up from a thrift store that creates a space for my "grab and go" box of critical documents as well, so everything is in one spot.?If you don't have file folders (labels are nice, but optional), make sure you have your supplies lined up before you start or you'll be frustrated by having to interrupt your progress.?Have some disposable cardboard boxes on hand and label one "recycling" for non-personal papers and one "shredding" so you have a place to sort? the "dead bodies" as well as your new files.Gather up all your papers from all the surfaces, drawers, closets, and boxes in your house. If they are boxed, leave them boxed for the time being; as you sort, it will be easy to file material from the boxes into its new spot. If the documents are loose, make sure you keep the unpaid bills and receipts that need attention?in a "to do" folder so they don't get buried in the event you have to interrupt your cleaning process.Start by sorting everything into 6 piles. Group 1: monthly (utility) bills, bank statements, credit card statements, pay stubsGroup 2: investment statements (pension, 401(k) and 457 statements)Group 3: tax returns and supporting documents Group 4: policy documents and deeds (insurance, home deed, car title)Group 5: big purchase receipts, warranties and user manualsGroup 6: "forever" documents (marriage license, birth certificates, wills, original social security cards)Group 1: Depending on your personal style, you may want to keep a portable file for the first category. I use a plastic accordion folder with 12 “slots”. I have slots designated for the gasoline bill, bank statements for each bank or account-holder, credit card statements, potential income tax deductions (I keep a running log of charitable donations for example with the documentation clipped to the back), pay stubs, medical expenses (again I keep a running log with the documentation clipped to the back), two sections for utilities (one for gas, electric, cable, phone and the other for garbage, water, and “city” services), and one for miscellaneous (subscription renewals, pest control). When I’m paying bills online or documents come in, I try to make a point to handle them so they go from an “inbox” to being processed to immediately being filed, which is easy if the file is sitting on your lap. At the end of the year, all your tax documentation is ready to be moved to the “tax folder” for that year, and everything else can be moved to manila folders. This would also work perfectly well if you had a file cabinet near enough at hand and you could bypass this “portable” step. Having the current year’s manila folders gathered into a couple hanging-style files that are the a specific color, like red, sets them visually aside from the rest of your hanging files, which can help too. As new bills and statements come in, file with the most recent in front . . . very easy. Shred ATM slips once you balance them against your monthly statement. Keep credit card receipts for big purchases in a separate file folder with their warranty paperwork in your warranty files (more later!) As you file your documents, on a piece of paper write down the account numbers and contact phone numbers of all your utility accounts. On a separate piece of paper, do the same for bank and credit accounts. In the event of a crisis, if someone has to take over managing your affairs, they will have a head start and bills won’t be lost in the shuffle. This is especially important if you no longer get paper bills; if something happens to you and no one knows your computer and passwords, your bills may become delinquent unless the companies can be notified to start re-sending paper bills to your financial designee. Writing down this information is not a project when you are already handling the documents; make sure your bank accounts are either in a revocable living trust or have a “pay on death” or named beneficiary so the funds aren’t locked down in the event of your incapacity. The list you are creating will become a “to do” list to get these items handled sooner rather than later. How long do you need to keep these documents? Keep utility bills for one year just in case there is some billing or credit history issue. If you claim a home office deduction for your business, you must keep these statements for three years. Keep paystubs for at least one year. Check your paystubs against your W-2 carefully at the end of the year, and if the W-2 is correct, you can destroy the back up. If you have changed or are seeking a job, you may want to keep sample paystubs from recent previous jobs to substantiate your salary demands at a new position. Keep bank and credit card statements for at least one year, longer if you are expecting to apply for a loan, since lenders will want to see documents verifying savings/accumulated income for a longer period. If you don’t receive paper statements, save the PDFs to a file on your hard drive and back it up; you can delete the previous year’s documents easily that way.Group 2: Create a folder for each type of investment and account holder (you may have one for yourself and your spouse for example, or one for each child). File current statements to the front after you check them for accuracy. If you receive “actionable” correspondence from the investment company, file it with the statements in the order you receive it, since the correspondence usually will have an action that is reflected in the next statement. If you receive monthly or quarterly statements AND an annual statement, once you check your annual statement for accuracy, then you can dispose of the other ones. Keep confirmation correspondence (recording your trades and changes) for at least three years. For IRA statements, keep paperwork showing your original application with the beneficiary designations, and if you’ve converted a traditional IRA to a Roth and paid the taxes or made non-deductible contributions ot a traditional IRA, then keep the IRS form 8606 or other paperwork to show that you’ve paid the taxes. For stocks, you MUST keep your original documentation showing your basis in the stock. Ask your tax advisor how to document your prior year income tax payments on gains, which also affect your basis when you sell, and keep this record with each stock file. (Keeping a running log of these payments and stock purchases in the front of the file might be perfect.) You must keep this documentation until a full three years after you pay the final taxes on the sale of the stock. (…not three years after you sell, but three years after the tax year in which you reported the sale) Again, as you are handling these documents, take a moment to write down the account number, contact phone number for the company, and beneficiaries on the accounts. If you have an “estate” binder, you may want to pull the beneficiary designations into one section of the binder to help your future executor.Group 3: The IRS has three years to challenge your tax returns, so you must keep a minimum of three years of returns and their documentation. If you are income or loss averaging, depreciating or amortizing over a longer period, you must keep the tax files for three years beyond the end of the last tax year of the period. IF the IRS suspects that you have failed to report income, it can challenge returns up to 6 years, so for the self-employed or for those who have multiple sources of income, the recommendation is that you keep at least 6 years of returns. There is NO statute of limitations on IRS investigations if the IRS suspects you of fraud or failing to file. For IRS recordkeeping guidelines, check out IRS publication 552.Group 4: Policy Documents and Deeds. Create a file for each type of insurance policy, including the title insurance on the purchase of your home (you may actually need to invoke this if there is some complication with the title when you try to sell). Keep the current policy and any critical correspondence. Always check the current policy against the old one before you renew so that you make sure that your coverages are correctly reported and adequate. Write the policy numbers and contact information on your magic list as well; your executor will thank you for it. For life policies, make sure you have the beneficiary information updated and provide your financial designee or executor with information about the terms of the policies (death benefits, accelerated riders to pay for terminal illness care). Keep the actual policies, the deeds to your house, and the titles to your vehicles in a safe deposit box or, if you have a portable “grab and go” fire and water proof safe in your home, in that.Group 5: Save receipts for big ticket items that you would need to justify replacement cost for an insurance claim. You may need to create separate files for “electronics” and “tools” if your purchases tend to be heavy in those areas. Make one file for your major appliances. Keep active warranties and extended warranties, stapling the receipt to the warranty if at all possible. Dispose of expired warranties in the recyclable box. If you’ve never looked at the user manual for a piece of equipment and don’t foresee doing so, get rid of those too. Many user manuals are available on the manufacturer websites. For improvements to your home, create a file called “basis”. On a sheet of paper, log the permanent improvements (not maintenance or replacements of equal value) you have made to your property and keep the documentation behind it, with the most recent on top. This documentation will be needed to offset the capital gains when you sell the property.Group 6: Keep birth certificates, marriage licenses, divorce decrees, death certificates, wills, trusts, and estate documents FOREVER in either a safe deposit box or your “grab and go” box. Make sure someone knows where the key is! Keep a permanent file of all closed, paid off, or settled loans or debts in the event of an issue with your credit file. It will be easier to clear a mistake if you have the documentation ready to hand. Check your credit file for accuracy for FREE once a year and correct any errors as you go; there are many vendors that promise this service, but the “sanctioned” one is . Now that you have all those account numbers and contact information in one place, tidy it up (if you need to), shred the rough draft and file it in your estate binder, which you keep in your grab and go box. If you are away from home for an extended period, bring your grab and go box to your executor for safekeeping. So now you’re filing system is user ready. As you go through all those scattered documents, you can now file them immediately where they belong in reverse date order (newest to the front) and, knowing what to shred, you will whiz through them! The recyclables can immediately leave the house and the boxes to be shredded can live in the garage until you can take them to a facility (Call RIDS at 916-391-0190) or a shredding “event”. Good luck! ................
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