A nation Records: What to keep, what to throw out

By ALAN S. NOVICK Scripps Howard News Service 26-JUN-06

Probably the next most important thing to organizing retirement records and documents is deciding what to keep and what to discard. Many of us, especially lawyers, belong to the "keep everything just in case" school. But that's not practical. Here are some thoughts on what to throw and what to store.

Throw out now: Bills of sale, credit card receipts and credit card statements for items that either have no tax impact or don't represent important assets; warranties that have expired; papers relating to smaller items, such as toasters, irons, lawnmowers, long since discarded themselves. Don't discard documents relating to items that are still being depreciated or claimed as business expenses.

Three to six years: Tax-related documents. I suggest a minimum of 3 years, which is the general statute of limitations for assessing taxes, but it is six years if there is at least a 25 percent understatement of income. So to be safe, keep all tax records (returns, receipts, checkbooks, invoices and records that support deductions, W-2's, and 1099's) for six years.

There is no statute of limitations in the case of tax fraud. In the case of records and returns relating to certain deductions such as the IRA deduction, records should be kept indefinitely.

Indefinitely: Depreciation records and documents relating to purchases, improvements, and tax return treatment of important assets such as real estate should be kept until the asset is sold, plus three years. This also applies to rollovers into IRA accounts.

Records relating to investments, IRAs, Keogh plans, pensions, insurance contracts, and other contracts should be kept until the transaction has been fully completed and/or all funds have been withdrawn, which sometimes means indefinitely.

Store permanently: Estate planning documents, wills, trusts, estate tax returns, birth certificates or adoption records, military records, marriage or divorce records, custody agreements, and proof of naturalization for naturalized citizens. After an estate is completely settled and all of the tax releases have been obtained and recorded, it is probably safe to just retain a copy of the final federal, and state estate tax returns, and the order of discharge, if any from the probate court.

This is a very abbreviated list and I'm sure I may have left out one of your favorites. If so, please let me know. In making your own list I suggest that the basic criteria are:

• Will I ever need this to defend a position such as a tax deduction or a contract or warranty claim?
• Will I ever use this _ definitely, maybe or probably not, but I might and so I'll keep it.
• I cannot really bring myself to throw it out, so the children can after I'm gone.