Blog Article

How to be a smart packrat

contracts, office partner agreements.

By Merriman Wealth Management, Wealth Advisor
Published On 07/21/2009

Usually once or twice a year I get the urge to organize my filing cabinet, particularly to clean out the piles of paper that seem to accumulate in folders with labels like “pay stubs,” “insurance” and “retirement.”

Part of me – my packrat side – wants to keep all sorts of things I might need in the future. Another part of me wants to have a lean-and-mean paperwork system that will let me quickly find whatever I want. It’s a constant tug of war that probably exists in millions of households.

In a perfect world, we would have instant access to everything without needing to clutter up our desks, our homes, our minds. In the real world, we have to deal with fundamental issues like these: What can I safely toss? What should I keep? How long should I keep it?

I’ll give you some guidelines momentarily, but first a few observations on the evolution of paperwork. A generation ago, paper itself was the essential vehicle for nearly all records. If you didn’t have the paper, you were potentially in trouble. Keeping the canceled paper checks from your bank account was sometimes the only way to prove that you paid a bill. Now, many banks don’t even return your paper checks. Instead, they give you access to them online. Likewise, many bank statements and investment statements are electronic.

A generation ago, most people had to rely on shoe boxes, filing cabinets or (I cringe at the memory) junk drawers for storing important records.  Now the majority of households have personal computers, which are marvelous storage devices.

In the past few years I’ve come to have less and less need to keep monthly paper bank statements in file folders. More and more, I’m finding it’s easy to download those statements to my computer and put them into virtual file folders. Electronic statements don’t poke their corners out of file folders; nor do they suddenly fall to the floor in a jumble. Even better, I can keep them forever, as long as I back up my data to a second hard drive – an important chore that has now become easy to automate.

In addition, my bank, my credit union and many other businesses I deal with seem quite content to keep my records for years, quickly accessible to me with only a user ID and a password.

As a result, the packrat part of my personality finds it easier to part with paper these days.

Still, some paper records remain the gold standard for proving whatever you are trying to prove. So back to the fundamental issues:  What should I keep and how long should I keep it?

Here are common-sense guidelines for some of the most important records we have to deal with.


In general, keep your tax returns and supporting documents for at least seven years after the date the return was due. The IRS can audit your return for up to three years for any reason. It has six years to audit you if it suspects you underreported your income by 25 percent or more. There’s no time limit at all if you failed to file a return or filed a fraudulent return.

I find that a copy of one year’s final return plus cancelled checks and other relevant documents usually fit into a paper file folder that fits easily in the bottom drawer of the file cabinet. I tend to keep these folders for a decade before I finally toss them. And before I toss them, I always take out the W-2 earnings statement for permanent safekeeping. If I ever have to prove to Social Security that I had earnings and contributions in a certain year, a W-2 will be a great way to do so.

IRA contributions

Keep all your IRA contribution records permanently, whether or not you deduct them on a tax return. Sometime in the distant future you may be asked or required to prove when and how you made those contributions. Even if you totally use up the IRA and close the account, keep the records.

Retirement savings plans

Keep monthly and quarterly statements for a year until you get an annual statement that contains the year at a glance. If you are contributing to a 401(k) or similar plan, your contributions should show up on your W-2 statement (which, if you follow my example, you will keep permanently).

Keep your annual account statements permanently, too.

Bank statements and cancelled checks

Your bank probably keeps records online for you, and if you absolutely must have a cancelled check you can get it (perhaps for a small fee). Download the statements to your computer and keep them permanently. If you get monthly paper statements, keep them in a file you store next to your tax records for the same year. How long to keep them is a matter of judgment. Personally, I rarely have any need to consult statements after a year; but I tend to keep them for seven to 10 years, giving my inner packrat a small win.

Brokerage and mutual fund statements

Keep brokerage statements for as long as you own securities you bought. Whenever you sell something in a taxable account, the record of the sale belongs in your tax files for that year. You’ll also need the purchase information to do your taxes properly. While more and more financial services firms supply you with cost basis information, you can’t absolutely rely on it. Keep the paper trail.

Mutual fund statements can be handled the same way. Keep your quarterly statements until you get the annual one. Your mutual fund folder should contain annual statements for as long as you have owned the account and quarterly ones for the current year.

Bills (presumably paid) and credit card statements

Here’s a category where you may feel as if you are being pulled in two different directions. If you have a cancelled check or other record to show you’ve paid for something, you should be able to toss the original bill, right? Well maybe, but not always.

Credit card companies are pretty good about keeping statements electronically, and you can probably get records you need for purchases you’ve made over the past year or two. But for especially important items (see below), keep the paperwork.

It’s a good idea to keep bills, invoices and receipts for large purchases that you might someday donate or sell (either transaction might become what tax accountants call a taxable event). In the unfortunate event that you must file an insurance claim for personal property losses, you’ll want to be able to prove what you owned and what you paid for it.

There are no hard-and-fast rules about what to keep and what to toss. Common sense is often a good general guide.  If you can’t find a receipt for a $40 item, it’s not likely to change your life. But if the item in question cost you $4,000, you might someday be very glad to have the paperwork that shows exactly how and when you got it.

Paycheck stubs

Keep them for a year, then toss when you get a W-2 statement that matches what’s on the paper stubs. If there’s a discrepancy, you should ask for a corrected W-2, which is known as a W-2c.

Housing records

Permanent is the right word when it comes to documenting money you spend to buy or permanently improve a house or condominium. Even after you sell a home, you should keep these records, as they might affect taxes you could owe on another principal residence.

Your will and other directives

Many people have their attorneys keep original copies of their wills and related documents such as powers of attorney and health care directives. It’s also a good idea to keep copies at home. And of course be sure anybody who finds them can easily determine where the originals are. Here’s one other thought about your will. After you execute a new will, do your heirs a favor by destroying all copies of the previous one. There’s nothing to be gained by letting your cousin Frank find out that you decided not to leave him your sailboat after all.

As you apply these guidelines to your own life, here are two final principles I hope you’ll keep in mind:

First, make sure your record-keeping system is at least somewhat intelligible to your family or whoever would have to find things if something happened to you. You can do this with a letter in your file cabinet. Place it prominently, perhaps inside a file folder that’s labeled “Read this first.”

Second, remember that the decision to keep a record can be reversed, but the decision to burn it or shred it or recycle it is permanent. So don’t completely ignore your inner packrat.

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By Merriman Wealth Management, Wealth Advisor

At Merriman, we manage your wealth so you can lead your best life. We take care of the financial planning and investment management, so you can deal in more possibilities and have the space you need to dream big.

Because it’s time to stop asking "What should I do?" and start saying, "This is what I could do."

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