Throwing out old files

sushipup1February 21, 2011

It's that time of year, getting papers together for taxes and weeding out the old stuff.

Here's something I want to make sure I understand...

I only **need** to keep IRA statements for Roth accounts. And any contributions that were not tax-deductible. Regular IRA and 401k statements, I can toss? Or keep a year end summary only?

You can tell that I get twitchy when it comes to getting rid of papers. I just dumped a box full of checks form the 1980's into the shred pile. Just now. And I still get twitchy. ;-o

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It's hard to decide what to keep I have a file in the safe of important documents, wills, trust. deeds, pass ports, banking certificates and such.

I also have a box up in the attic full of every tax return we ever filed, 401 year end statements and a few other papers I was not sure about.

Before you say you only need to keep tax returns for 7 years when I applied for social security the woman ask me why I had a dip in income in 1979 I said I didn't that I recalled. After looking at what she had I went up and found my W2 for 79 and what had been reported to social security was not correct. She took a copy of the W2 and it made a difference in what I am collecting now. Not a huge differences but several hundred dollars a year difference.

I do have a note in the box for our daughter that says if you are reading this we are probably dead or to loony to care so just burn this box you don't need anything in this to settle out estate. LOL

    Bookmark   February 22, 2011 at 1:05AM
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"I do have a note in the box for our daughter that says if you are reading this we are probably dead or to loony to care so just burn this box you don't need anything in this to settle out estate"

That is funny! And a good idea. We have lots archived paperwork in the attic too. I try to clean out every couple years.

I am trying to go paperless. I have have been scanning everything in from my husband's business and our personal records. At what point do you think it's safe to trash the paper copies? 1 year? 2 years? Or don't worry about keeping it at all?

    Bookmark   February 22, 2011 at 8:14AM
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"I have have been scanning everything in from my husband's business and our personal records. At what point do you think it's safe to trash the paper copies?"

Anybody I know who scans tosses the paper immediately. Otherwise, why take the time to scan?

I personally would rather keep the paper, and I do not scan.
DH and I got a mini audit, and they wanted paper copies of everything.
It was far easier for me to pull the proper paperwork (front & back copies of checks, letterheads, etc) and make copies, than it would be for me to browse through scans and make copies.

    Bookmark   February 22, 2011 at 10:32AM
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It took me a long time to come to grips with paper; what's important and what's not.

I, too, am a paper keeper since I don't do financial things or keep records on line - an irretrievable crash is a frightening prospect. I only save 10 years of back tax returns and shred bills as I pay them since I'll know soon enough if a bill got overlooked. I save only the current year's worth of checking account statements since that carries all the transactions and check images - some of which are handy at tax time.

I have kept every 40lk guarterly and brokerage accounts statements plus any buy, sell, call statements since someday someone will want to know my holdings and their cost basis. Yes, it's a pile of paper, but it's boxed by year and the bunch of lidded computer paper boxes are just perfect for holding multiple year's worth at a time.

    Bookmark   February 22, 2011 at 2:39PM
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Here's an article about how long to keep financial records that might be helpful.

Here is a link that might be useful: Bankrate article

    Bookmark   February 22, 2011 at 3:23PM
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Yeah, yeah, I know how long, and I've sent the article to others. Just the nature of the IRAs made me think.

But it's easier said than actually done, and I can see from the replies that I'm not alone with boxes of paper.

    Bookmark   February 22, 2011 at 3:34PM
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I also have been in the process but realized that without some paper record no one would know where to look. Some papers come only once a year or the only link is the annual privacy notice.

    Bookmark   February 23, 2011 at 10:36PM
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Being from another country, this idea may be out to lunch as far as the U.S. is concerned, but for those in Canada, they may need to keep a record of regular or occasional payouts made by mutual funds, which payouts must be considered income in the year received.

If their mutual fund makes payouts in cash, those amounts are added to income in the year received, and taxed then, and that is the end of it.

But with many mutual funds, they tell us of the amounts declared as income year by year - but those amounts are re-invested.

When one sells an asset, one must account for the capital gain, i.e. deduct the cost of purchase from the amount realized on sale to learn the amount of the gain, on part of which one is taxable in the year of sale.

When I bought a stock that pays dividends, usually they are paid in cash, so I must declare them as income in the year received and pay tax on them ... but the amounts paid out are not added to the asset.

When I sell such a stock, the total amount invested is the amount that they cost me in the first place, so I deduct that amount from the amount realized when I sold them, to find the capital gain, on which I am taxed in the year of sale.

Some stocks allow me to re-invest the dividends to purchase more stock (sometimes at a discounted price). When I choose to do that, when I sell the stocks, the amount that they cost me is not only the amount of the original purchase, but includes the various amounts reinvested over the years. Which means that I must have a record of all of those transactions, including each of the amounts renvested, in order to calculate the cost price(s) to deduct from the proceeds of sale, in order to calculate the capital gain.

If I neglect to do so, and claim only the amount of the original purchase, I lose the credit for all of those amounts invested later, on which I paid tax at the time, so I need to pay tax on those reinvested payouts again, thus pay tax twice on those amounts.

For example, I bought a stock 44 years ago, that has paid dividends for each one of those years ... which was received in cash, so I dealt with those amounts at the time, but they did not buy any more of that stock directly, so they have no effect on the amount that I paid for those stocks.

If I had had some of those dividends reivested, I'd have needed to have kept track of all of those reinvested amounts, in order to calculate my actual total cost, thus my capital gain.

As many mutual fund owners choose to have their payouts reinvested at the time, to buy more funds, they need to keep track of each of those amounts, to calculate their actual cost of the asset.

Sometimes brokers or management companies keep track of those amounts, or order to calculate the average cost per share ... but it is risky to count on such records having been kept ... or being complete (especially if funds were merged with others, as often happens, especially with funds that have a bad growtth record).

Lose those records ... and you may well pay tax twice of those reinvested amounts.

ole joyful

    Bookmark   February 24, 2011 at 6:26PM
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OJ, you are speaking about ordinary accounts, I was talking specifically about American tax-sheltered IRAs and 401K's.

IRA accounts are tax sheltered. With traditional IRAs, the money you put into the account is not taxed, the increase in value/earnings are not taxed, until you make with withdrawals. You can start making withdrawals at 59+ and MUST start taking them at age 70+. At that time, all you withdraw (there's a formula) is taxed at ordinary income.

With Roth IRAs, you deposit after-tax dollars, and don't pay tax afterwards (am unsure of how the earnings are taxed).

So I open an IRA in 1983 and deposit the max every year. Over the years, the assets within that account are invested in different instruments. I have a 401K at one job that gets rolled over into the IRA with no tax consequences. At some point over many years, I move my IRA from Dean Witter to Schwab then to Vanguard, and over time, move the assets around within the same account. All is untaxed. Nada. I will pay taxes when I withdraw money when I am 70.

Now I also have a small Roth account, kept separate. I do not qualify to rollover the traditional IRA to Roth, and it would be a large tax hit that I do not want right now. I want to wait until my income is lower, and I get taxed at a lower rate (I hope).

So the funds in the IRA today bear little or no relation to the first investments made with Dean Witter in 1983. Every year, I can verify that the amounts are correct.

Why do I need to keep every record or all the IRA accounts from DW (1983 to 1992), Schwab (92 to 2005), Vanguard to today? The accounts no longer exist, the securities owned in the accounts originally are no longer held, and all traditional IRA accounts are separate from Roth accounts, which are handled differently.

So, once more, the question is: how long do I keep old IRA statements?

    Bookmark   February 24, 2011 at 7:01PM
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I don't think you do need to keep the old "what something used to be records". Going on the assumption all went well with the transfers from DW to Schwab to Vanguard - Vanguard is what you would be keeping since that is the account that exists.

    Bookmark   February 25, 2011 at 9:01AM
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Any time you have a stock that's not in a tax-free account, you need to be able to document the cost basis. If you have been holding on to, say, some GE stock for the past 20 years and particularly if the account has been transferred to a different brokerage firm in the mean time, it's very likely that the original purchase record sitting up in your attic is the only way you are going to be able to figure this out. And it gets even more complicated if you bought more shares at a different price subsequent to the first purchase, and didn't keep those records.

Similarly, I sold a house that I had lived in for 31 years and whose mortgage I had paid off 10 year earlier. Not only did I need the original paperwork to establish the cost basis, but I was able to save a lot in taxes on the sale because I was able to update the basis by almost $200K due to my retention of all the records for two major remodels, and a bunch of other projects I built myself.

Bottomline: don't throw out original records, no matter how old they are, if they still relate to an investment you hold.

    Bookmark   February 26, 2011 at 1:12PM
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