Predictions of a paperless society have yet to come true

Documents you need to save or purge while getting organized

May 23, 2010|By Eileen Ambrose, The Baltimore Sun

Save it or toss it?

It's a question we face whenever confronted with canceled checks, utility bills, ATM and credit card receipts, 401(k) statements — that mound of paper taking over our homes.

If you're like many, you err on the side of caution and keep each piece, letting the stack of papers grow, throwing them in an overstuffed drawer or stowing them in a box that won't be reopened for months or years.

Or you may be paper-averse, especially if you're Generation Y or younger, and save digitally instead.

"People in their 20s run everything from their phones and don't understand the value of paper," says Regina Leeds, co-author of "One Year to an Organized Financial Life." "There are times when you do want paper records. Some things are too important to trust to cyberspace, like your birth certificate or Social Security card."

You don't want to be in the extreme of either camp. Save everything, and you end up with so much clutter that you — and someday your heirs — won't be able to quickly find documents. Worse, go entirely paperless, and you could one day face the time-consuming and sometimes impossible task of trying to retrieve old records.

Getting papers well-organized can take hours, but in the long run it can save time, money and help you monitor your financial progress. It can also help detect fraud.

Just ask Anna Sergunina, a planner with MainStreet Financial Planning in Odenton. Sergunina often hears clients gripe about the difficulty of keeping records, and recently launched a service where she will set up a filing system for a fee of $290, which includes travel to your house.

Weeks ago, Sergunina organized a client's records, which included unopened statements, and discovered $7,500 in unauthorized charges over three months. The bank and credit card companies restored the funds, but the theft could have been uncovered sooner had the client been organized.

James Doyle is among those using Sergunina's organizing skills.

Doyle cleaned out some records a couple of years ago when he moved from a house to a smaller place at a retirement community in Washington. But the semiretired consultant still had two file cabinets full of papers needing sorting, labeling or shredding.

Sergunina spent half a day creating a filing system and disposed of a few bags of papers. She condensed Doyle's documents into two boxes of files, with instructions on when to jettison records.

"It's a tremendous help," Doyle says.

Of course, you can organize records on your own.

Suzanne Hall of Financial Consulate in Hunt Valley helps people get organized and says you could start by sorting papers into different categories, such as real estate and investments, and then sticking each category into a file. Keep the number of files to no more than 20, she says. Then go through each and weed out what you don't need.

"It could take a lengthy time if paperwork has never been organized," warns Hall, whose fee starts at $75 an hour.

Her biggest project to date: spending five full days earlier this year arranging the records of a 75-year-old woman who saved papers going back to 1960.

How do decide what to purge and what to keep? Here are guidelines:

Legal documents Many records you'll keep for life, including birth certificates, passports, adoption forms, marriage and divorce papers, military records, Social Security cards, wills and other estate documents. Store them in a fireproof box for protection.

Taxes The disposal of many documents depends on how long the Internal Revenue Service might want to see them.

The IRS will go back no more than three years for a routine audit of a tax return. But it will look back twice that far if you under-report your income by more than 25 percent. Fail to file a return or submit a fraudulent one, and there is no limit to how far back the IRS will go.

To play it safe — and assuming you're honest — dump a tax return after seven years along with the documents supporting deductions or income claims made in the filing, tax experts say.

Granted, tax returns do contain lots of useful financial information, and some money experts say they should never be thrown away. If you don't want to part with tax forms, scan the returns and store them in a computer file to reduce paper.

Investments Keep monthly and quarterly investment statements throughout the year. Toss them later when you receive the year-end summary statement. You'll want to hold on to these statements for as long as you own the securities and several years beyond, again for tax purposes.

Some brokerages and investment firms maintain records on what you paid for securities — the cost basis — which can help you figure your gain or loss when you sell. And beginning with stock purchases next year, brokerages must report your cost basis to the IRS when you sell, which should reduce your paperwork.

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