Neat Freak Or Pack Rat: What To Keep, What To Trash
By Sarah J. Schmidt
Summer 2006
There's nothing like a PCS move to pit neat freaks against pack rats in a showdown of trashy hysteria.
Neat freaks gleefully take advantage of the impending move and throw out everything that's last season, last assignment or last in line. Pack rats lay claim to every shred of matter in the universe and hold on with visceral virtue. But it doesn't have to be that way, at least not when it comes to family documents.
Pack rats, listen up! It's OK to let go! Certain files and papers should be trashed so they don't get in the way of important stuff (and so you can show your neat freak spouse you're really not a pack rat after all). The trick is in knowing when and what to let go
This is where neat freaks should pay attention! Some records should be kept forever, if you want to avoid certain legal problems. We're not talking about a warehouse full of boxes, just a few select documents stored safely in an easily accessible location.
Keeping Records And Files
Think of your family documents in three categories: (1) crucial; (2) important; and (3) nice-to-have.
"Crucial documents" are those that would be impossible or expensive to replace, such as birth certificates or real estate deeds. Keep these permanently in a safe deposit box at a financial institution or in a waterproof, fireproof safe at home. Rental costs for safe deposit boxes are inexpensive, but you will need to rent one at a new place every time you PCS (permanent change of station).
Keeping your other records isn't as complicated. "Important records" are things such as canceled checks, employment records and tax returns. These should be filed long-term, but they do not merit space in the safe deposit box or home safe.
"Nice-to-have records" are things such as warranties and auto repair records, which have limited use and can be purged at some point. They definitely do not go in the safe. A home filing cabinet is adequate for all these records.
Just be sure you pull whatever documents you need during a PCS, then transfer the remaining files to moving boxes. Do this yourself if you want to find your documents in the same order when you unpack. Movers cannot and will not understand your personal filing system. This means the papers you neatly filed in one folder labeled "insurance" may get dumped in a box with shoe laces and steak knives. It's a neat freak's worst nightmare!
Frequent relocations and deployments make recordkeeping a challenge for military families, says Doug Roberts, a financial advisor with First Command Financial Planning. He hears from clients who complain about "dragging around boxes of paper" every time they move.
"They really don't see the value of keeping records until something happens and suddenly they need those files," he says. It can be even more difficult for families stationed overseas who need documents left behind in storage, notes Roberts, who works from an office near Spangdahlem Air Force Base in Germany.
Roberts recalls one client who wanted to cash in an investment but was missing several years' worth of records. Without them, the client could not prove his original basis and thus faced a hefty tax burden. The investment company provided copies of the missing records, but not without a fee. "It cost him less than he would have paid in taxes, but still, it was an expense and headache he could have avoided had he kept the proper records," Roberts says.
The Urge To Purge
A PCS move is an excellent time to purge old records and streamline your personal files. It also helps cut down your household weight. Assuming you have already identified "crucial" documents to be kept permanently in a safe deposit box or home safe, now you must address all other documents. A good rule of thumb is to keep anything you may need to prove ownership, resale or income.
"You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code," states IRS Publication 552, "Recordkeeping for Individuals." This is generally interpreted to mean three years from the date you file an income tax return, because it is how long the IRS may examine your returns under the statute of limitations. However, the IRS may go back six years if you have unreported income exceeding 25 percent of your gross income.
Most importantly, there is no statute of limitations if the IRS suspects fraud. This means the IRS may go back as many years as necessary to investigate cases such as failure to file a return, filing a false return or other willful evasions of tax liability.
You should also keep all documentation used to substantiate your tax return, including W-2 and 1099 forms. If you make a non-deductible contribution to your IRA, you will also want to save IRS Form 8606 in your retirement file. And concerning the subject of retirement, your old W-2 forms someday may prove useful in collecting Social Security benefits. Just because your tax files are outside the three- or six-year audit window, it's still a good idea to save your primary tax forms and documentation until you're well into the Social Security years.
If you own property, you must keep documentation to prove your original cost plus improvements in case you ever sell or transfer the property. Other rules and statutes of limitations also may apply, depending on your particular situation. Check with your tax advisor before discarding any property records.
In general, it is safe to discard the following items, but use a cross-cut shredder to properly dispose of them because of the high risk of identity theft:
- cancelled checks that you will not use for tax purposes or proof of purchase
- monthly credit card statements if your card company provides a year-end compilation
- receipts and sales slips if not needed for warranties, resale or taxes
- expired warranties
- instruction booklets and warranties for toys, equipment, appliances and any other item you have replaced
Going Electronic
Many people now rely on electronic records, but the same rules for recordkeeping apply. The IRS requires legible electronic records, supplemented with paper copies of all documentation substantiating your tax return.
"Electronic records are great, but I wouldn't get rid of all the paper," cautions First Command's Roberts. He recommends downloading electronic files such as bank statements, then storing the data disks with your records. This takes up less space and you can store multiple copies.
"The majority of people are pretty lax about recordkeeping because it's just not fun," Roberts admits. "But those few minutes you take today to burn a CD or put that receipt or tax return in a safe place could save you hours in the future."
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Attorney, military spouse and self-confessed neat freak Sarah J. Schmidt writes frequently for Military Money and other business publications.
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How Long To Keep Your Important Papers
Adoption/custody papers: Permanently
Birth, marriage, death certificates; citizenship papers; immunization records: Permanently
Bank statements: Six years, longer if needed to document tax returns
Canceled checks: Three years if supporting tax returns, one year for all others
Credit/debit card statements: Six years for year-end statements, one year for monthly statements if year-end is saved
Diplomas, transcripts, school records: Permanently
Divorce/separation papers, settlement agreements: Permanently
Employment records: As long as references needed for future employment
Home-based business records: Six years
Insurance policies: Keep current policy on file always, remove outdated policies
Military papers: Permanently
Motor vehicle/boat titles, licenses, liens: Until statute of limitations ends after property sold or transferred (depends on state law)
Motor vehicle/boat maintenance records: Until property sold or transferred
Passports: Until expiration date
Power of attorney for health care/living will: As long as in effect
Property deeds, title papers, mortgage/lien documents: Until statute of limitations ends after property sold or transferred (depends on state law)
Social Security cards: Permanently
Stock, bond, mutual fund or other securities' certificates; certificates of deposit: As long as owned, plus three more years for tax purposes
Stock, bond or other investment statements: Six years for year-end statements, one year for monthly/quarterly statements if year-end is saved
Tax returns, supporting documentation: Six years minimum, longer if space available
Will: Keep as long as it is in effect or until superseded by new version, then destroy old version
Related articles:
Getting Ready For Your First Military Move: PCS Moving Tips
Countdown To Moving Day: PCS Relocation Checklist
'Families First' Program Set To Ease Military Moving Process
Keep Your Sanity At Moving Time: Relocation Advice for Military Families
Military Family Relocation: Furnish and Decorate Your Home The Military Way
Military PCS and Moving Advice: How To Submit A Military Claim
