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Financial TIPs: Document Shredding

Financial Planning

On a monthly basis we are often inundated with paperwork. While disposal of much of this paperwork is as simple as throwing it in the trash or recycle bin, some types of paperwork should be shredded to avoid identity theft. Whether its credit card statements, bank statements, investment holdings, tax records or “junk mail” before we know it our file cabinet is filled with paperwork. A question I am often asked is: How long should we retain all these statements? When it comes to personal document retention guidelines, there are some general rules that you may want to consider when deciding to retain or discard personal records. It is advised to always check with your attorney and/or CPA if you have any specific questions regarding a specific document.

  • Income tax returns and records --  From 7 years to retain permanently

The Internal Revenue Service (IRS) has 3 years from the date of the return in which to audit federal income tax returns. However, the I.R.S. can require individuals to produce tax records for six years if they fail to report income that is more than 25 percent of their gross income. There is no statute of limitation for failure to file or tax fraud. Therefore, experts generally recommend keeping anything that verifies the information in your tax return for at least seven years. I was always taught to never throw away copies of your tax returns and checks made out to the government - all other backup documentation should be retained for at least seven years.

  • Retirement related  --  Retain permanently 

* IRA contribution records (Form 8606)

* Pension plan documents

  • Official personal documents  --  Retain permanently        

* Birth certificate        * Adoption papers      * Social security card 

* Marriage license     * Citizenship paper     * Military discharge

* Divorce  decree       * Diplomas                     * Death certificate

  •  Estate Planning -- Retain permanently or until a new document is signed

* Wills             * Trusts          * Power of Attorney        

* Health Care Directive      *Living Will

  •  Insurance policy/ certificates -- Typically 1 to 6 years after termination of policy, depending on purpose 

* Life policy     * Disability     * Homeowners/Auto/Liability

  •  Investment -- Typically 1 to 7 years, depending on the purpose (tax related)

* Investment statements        * Bank statements     * Cancelled checks

* Mutual fund statements     * Credit Card Receipts

  •  Real estate --  3 to 6 years after investment sold

* Home purchase and improvements

  • Household purchases -- Varies

* Receipts  --  warranty expires or dispose of item

* Contracts & agreements – at least 6 years

  •  Loan agreements  --  7 years after repaid

* College financial aid documents

* Mortgages     * Bank loans

  • Junk mail -- Immediately 

Lastly,  believe it or not, junk mail can contain a significant amount of personal information.  You will often receive many offers for loans or credit cards or even membership offers to such clubs as AARP that includes bar coded information on the bottom. Most people will throw these items straight into the trash without a second thought as they have not provided any personal information. Unfortunately, when you are pre-selected for these offers, the company will create a barcode or this information that can be read when your form is sent in to accept the offer. Those adept at identity theft can unlock this information and gain more personal information about you than you would expect.

Lower your risk of identity theft by shredding the documents above and prevent your photos and personal information from being used for fraudulent purposes by shredding as soon as you have finished with them.  When shredding any documents on your own the preferred shredder would be one that cuts pieces into a cross-cut, diamond-cut, particle or confetti-cut. Avoid using a strip-cut model which are considered the least secure where the pieces can be easily reconstructed. If you are not sure whether a document should be shred it is best to always air on the side of caution.