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PODCAST: Which Documents to Keep, Which to Shred, and Which to Scan

A speedy recovery from a disaster can depend on your recordkeeping.
Kiplinger’s Personal Finance writer Rivan Stinson tells us how to get
our papers in order.

Transcript:

David Muhlbaum: What documents can you throw out, and which must you
save, and where do you put them, is a debate as old as, well, writing
things down. But technology and natural disasters have thrown in a few
new twists.

We’ll explore the latest on keeping records safe and accessible with
Rivan Stinson of Kiplinger’s Personal Finance. Also, you might be able
to invest your 401(k) savings in Bitcoin, all coming up in this
episode of Your Money’s Worth.

Welcome to Your Money’s Worth. I’m kiplinger.com senior editor, David
Muhlbaum, joined by my co-host, Kiplinger senior editor Sandy Block.
Sandy, how are you doing, and for chuckles, tell the good people where
you are.

Sandy Block: I’m at a state park in West Virginia that has good wifi,
and more importantly, a good bar.

David Muhlbaum: And a little room. You have your own little subsidized
recording studio in there.

Sandy Block: I’m in the business center, which shockingly on a
beautiful spring day, is totally empty. Everybody else is at the bar
or the golf course.

David Muhlbaum: Yeah. Well, good. The truth is that we are still
recording remotely here, with me and Sandy just waving at each other,
and sometimes the guests, through a screen. But we have obtained a new
mixing board for our studio at the offices. We are planning a return
to recording in the shared human space. Will anyone notice? I don’t
know yet. I’m looking forward to recording without worrying about leaf
blowers, or one of our dogs barking in the background. Anyway, that’s
the future, hopefully, the near future. For now, Sandy, a story that
absolutely caught my eye this week was the news that it’s going to be
possible, at least for some people probably, to invest in Bitcoin in
their 401(k).

Sandy Block: That’s right. The 401(k), which is going to be the
pension plan for most of us, is messing around a little bit with
cryptocurrency. Making matters even more interesting, Fidelity
Investments, a giant in the 401(k) area, is the one that is involved
in this.

David Muhlbaum: Yeah, it makes it this powerful headline. But splashy
as it is, it hasn’t upended the retirement investing world, or
401(k)s. Look, I tend to think of it as like that’s where you invest a
portion of your salary in a nice, diversified well-managed range of
mutual funds, not Bitcoin, which is speculative. I’m not even arguing
about the merits of crypto here. It’s not the time. I’m just saying,
look at the trading range of Bitcoin, that’s volatile, that’s
speculative.

Sandy Block: That’s right. If you think the stock market is volatile,
take a look at Bitcoin.

David Muhlbaum: So, why?

 Sandy Block: Well, I think that certainly among young people, there
is a lot of interest in Bitcoin. Fidelity is a business, and it wants
to meet its customer’s needs. It certainly got Fidelity a lot of
attention with this announcement. I think the more you hear about
Bitcoin, for many people, that’s the only way they can invest is
through their 401(k). So, maybe they think this is something that
might catch on.

David Muhlbaum: Okay, but let’s sort out for a second who the
customers are. Because Fidelity is the plan provider. They’re supposed
to provide the platform by which you can invest 401(k) money. They
don’t tell you what to do. Those choices of what options you can
invest in, that goes to whatever company wants to use Fidelity to
administer its 401(k).

Sandy Block: Right, and even then, just because they’re using Fidelity
doesn’t mean that they’re going to automatically offer Bitcoin.

David Muhlbaum: It’s a choice for the customers to do that.

Sandy Block: That’s right. The customers, unlike Fidelity, have a
fiduciary duty. They are required basically to make sure that the
funds, and investments that they offer their workers … It’s the
federal law. It will be interesting. My guess would be that maybe some
high-tech companies that have a lot of young, crypto-minded employees
might wade into this. But really the trend in the most recent years is
making 401(k)s simpler, not harder. What they found is people don’t
like a lot of choices in their 401(k)s. That’s why such a huge amount
of money now goes into target funds, where basically you put the money
and then sit back and let somebody else manage it for you. A lot of
people really do not want to get down and dirty in their 401(k)s. They
would rather have someone else do it and not have to worry about it.

David Muhlbaum: At the same time, there is this subset of people who
very much do want to trade and fiddle around. There’s the brokerage
window, which you’ve written about, the ability to trade stocks in a
401(k). That’s popular?

Sandy Block: It’s not. The number of people who actually use the
brokerage window is very small.

David Muhlbaum: Okay, but they care. I guess that’s what I was getting
at, they care.

Sandy Block: Yeah. But what the brokerage window does, a large company
401(k) plan might say, “Here are three target funds,” an index fund
and a growth fund, and maybe offer 10 funds to invest in. Then they’ll
also say, “If you would like to invest in more types of things, you
can go into the brokerage window.” Oftentimes a brokerage window will
offer a much broader variety of mutual funds and individual stocks.

Sandy Block: Oftentimes the fees are higher, and as I said, the
take-up of these has not been that great, but it is a way for a
company to say, “If you really want to go a little wild with your
401(k), we will let you in your brokerage window, but we are not
selecting these funds for you.” When you go into the brokerage window,
you do that yourself.

David Muhlbaum: Right. But there is a potential tax advantage here
too, for both the stocks and very much crypto?

Sandy Block: I think one of the advantages of investing in
cryptocurrency or Bitcoin in your 401(k) is that taxes on your gains
are deferred until you take the money out. What a lot of newbie
Bitcoin and cryptocurrency investors don’t realize is, that for the
purposes of the IRS, they are treated just like any other asset. If
you make a lot of money in Bitcoin and sell it, you owe capital gains
on that amount. If you trade crypto, if you trade Bitcoin, and it gets
real high, and you make some money off the table and reinvest it, well
you’re going to owe taxes on that money. The IRS is so concerned about
this, that it’s right up there on your 1040, “By the way, if you owned
any cryptocurrency and you made money on it, you have to pay up.”

David Muhlbaum: Right. But for the 401(k) investor, yes, they won’t be
taxed on those gains. On the other hand, they can’t touch them either
because it’s a retirement account.

Sandy Block: That’s right, it has to sit there until you retire, and
then you will pay taxes on your gains. But you’re right. I read all
these stories about, “I invested in Bitcoin and now I bought a car.”
Well, you’re not going to buy a car with the Bitcoin that you buy in
your 401(k), unless you take it out, in which case you’d pay both tax
and penalties on it if you were under 59½. So, certainly, the money
that you invest into Bitcoin in your 401(k) is not money that you want
to get at any time soon.

David Muhlbaum: Yeah. We’re not the only people sounding caveats about
this idea. The Department of Labor has gone all Debbie Downer on it
too, so how do they fit in?

Sandy Block: Well, yeah, this week, the Department of Labor said they
have grave concerns about what Fidelity has done.

David Muhlbaum: Grave concerns.

Sandy Block: Grave concerns. That should be a concern for employers
because private employers that offer 401(k) plans have a fiduciary
responsibility to manage their plans in the best interest of their
employees. The federal government department that is in charge of
enforcing that fiduciary responsibility is the Department of Labor.
So, if the Department of Labor isn’t crazy about this idea, that’s not
going to go unnoticed by companies that want to stay on the good side
of the law.

David Muhlbaum: Right. So, the company has the legal responsibility,
and the Department of Labor is looking over their shoulder to make
sure that they’re staying in the lines?

Sandy Block: Right, they’re the ones who administer ERISA, which is
the law of the land governing pension plans, 401(k) plans, and things
like that. Basically, it’s the law of the land that says if you’re a
company with a 401(k) plan, you can’t cash it out and go on a cruise
or something like that. So, it’s serious.

David Muhlbaum: All right Sandy, we will see how this one shakes out.
Fidelity and the crypto community versus the Department of Labor.
Coming up next, we will talk to Rivan Stinson about documents. Which
ones to keep, which ones to shred, and which ones to keep near you in
case of emergency. All coming up next on this episode of Your Money’s
Worth.

Which Documents to Keep, Which to Shred, and Which to Scan

David Muhlbaum: Welcome back to Your Money’s Worth. Joining us for
today’s main segment is Rivan Stinson, a staff writer for Kiplinger’s
Personal Finance. While she’s covered all sorts of topics for
Kiplinger, when we last had her on Your Money’s Worth, it was to talk
about insurance coverage for natural disasters. Today we’ve got a
disaster on the brain as well, because we want to talk about, in part,
recovering from disaster, the paperwork part, that is. So, welcome
Rivan. It’s nice to have someone to turn to for a disaster.

Rivan Stinson: I guess.

Sandy Block: You know, we could have Rivan talk about the cost of pet
care. That’s been another one of her big topics.

Rivan Stinson: Yeah, my cat takes all my money, and he probably wants a sibling.

David Muhlbaum: Well, I think it would be great if we could have Nikon
join in. Will he sign the release?

Rivan Stinson: Yeah, I’ll put his paw print on it.

David Muhlbaum: Cool, because nothing sells online quite like pictures
of cats. But how about this for a topic then, Rivan? What to do with
your pet when disaster strikes? Like when you have to evacuate, nobody
wants to leave their pet.

Rivan Stinson: Well, no. One, let’s hope that they get in the carrier.
Bring them some food, water, and their meds. Thank God I don’t have a
sickly cat. But my problem would be getting him in the carrier.

David Muhlbaum: Yeah, of course. Okay, what about something like a
rabies certificate in case you were being evacuated and having to go
live somewhere else?

Rivan Stinson: Well, I wouldn’t have thought about that. I would just
hope the vet still has it.

David Muhlbaum: Right. In some places, they give you an actual
physical tag, like a little piece of metal. On my dog, it’s on her
collar. Do you see what I was doing there? I was getting us from pets
back to documents because that’s kind of at the core of what I want to
talk about. You have an emergency of some sort, and to recover from
that, you are going to need access to documents. So, the core of the
question, and what you’ve been exploring, Rivan, is which documents do
you have to physically have with you, which can you can, and which can
you not worry about? So, that’s what I want to get to.

Rivan Stinson: Okay. Well, the easiest answer was that you can scan
everything. The issue comes more, when do you need an original
document versus a scan or a copy? Usually, that’s more going to deal
with your birth certificate. States, and any type of government
agency, just do not like a copy of your birth certificate, in terms of
the scan. They want that original piece to say what hospital you were
born in, who is your mother, who is your father, everything like that.
For that, you want to store it somewhere that will not get destroyed.
Nine times out of 10, that is going to be a safe deposit box, or if
you have a fireproof safe. You need to get it out of the house, and
put it in a Ziploc bag so nothing floods. But in everything else,
digitize it. You should keep your Social Security card with your birth
certificate as well. But when was the last time you pulled out your
Social Security card? I rarely do, I just write my number down.

David Muhlbaum: Rivan, for someone concerned about a natural disaster
at their doorstep, they know they need a go-bag, packed with what they
and their family absolutely must take with them. But the idea of going
to the file cabinet, and getting a packet of critical documents and
cramming that in there, you’re saying that’s obsolete?

Rivan Stinson: Yes. Because nine times out of 10, you probably have
everything on your computer, on your phone already.

David Muhlbaum: You should.

Rivan Stinson: Or you should. Because let me take that back, my father
does not, but he does have a safety deposit box, and I know where the
key is at. In those types of situations, you can also probably grab
your license. That is the first thing.

Sandy Block: Your driver’s license?

Rivan Stinson: Your driver’s license. The first line of defense, in
terms of identifying who you are to do things. These other documents,
let’s think insurance policies, maybe a healthcare directive, you have
a copy somewhere in the internet ether, and that’s because it’s a
login account.

But now with technology also comes other issues of just remembering
your 50 million passwords to get into all of these places. For that,
it’s more so where are your passwords? Again, if you are old school
like my dad and write all his things down, you keep that list of
passwords and your safety deposit box. Or if you’re a little more
tech-savvy, you can share it with a trusted friend or family member.
You need to have a backup to make sure you can log back into your
accounts.

Sandy Block: For a lot of people, Rivan, this might sound like a lot
of work. I know one of the things we’ve talked about is, for example,
doing an inventory of everything you own for purposes of filing for
insurance. But hasn’t technology made that a little easier now?

Rivan Stinson: Yes. It’s literally as simple as downloading an app on
your smartphone, either yours or your kid’s. Or if you happen to have
a newer printer, which I do, that has a scanner, and it’s Bluetooth,
put them right in there and do it. It’s more taking the time out t
actually do that. But if you can snap a picture on your phone, you can
create an inventory. You can keep your documents.

David Muhlbaum: How about doing a video?

Sandy Block: Oh yeah.

Rivan Stinson: Video is also important, particularly when it comes to
your home because it’s hard to really describe in words what your home
things are worth. But a photo it’s easier to see and maybe it will jog
your memory in terms of, “Oh yeah, that was my great-grandmother’s
cabinet. It was made of 100-year-old oak,” and whatever the appraisal
would be for that. But writing that down, you may forget some of those
details. It’s just easier. It’s another way to record, on top of
keeping maybe a Google doc that is the home inventory connected to
that video. The video is just the easiest thing for you to do.

Sandy Block: Rivan, something else that you’ve written about, that for
some reason, always generates a lot of reader mail, is not only where
to store your documents, but how long you need to keep them. That
particularly comes up with respect to tax records. Since we’re not
that far away from tax day if you could run through what you can keep,
and which ones you could actually safely shred at some point?

Rivan Stinson: Okay. In general, you want to keep all your tax
documents on a three- to four-year rolling basis, and that’s because
the IRS has about three years to audit you. You want to make sure you
have the documentation to claim all the deductions if you itemize and
things like that. However, things get a little more complicated if you
have a broker account, maybe you have some IRA contributions. For the
broker example, you want to keep those things for 10 years, only
because if IRS thinks you’ve underreported, they have a longer time
period to audit you. Same with some IRA contributions.

Rivan Stinson: But in general, if your life is pretty simple and you
have a W2 form, you just want to keep them for about three, or four
years. It also gets a little complicated if you’re a homeowner. You
want to keep all of your documents until the day you sell your home,
plus three years. That’s because you are going to have to prove your
cost basis for your house or your primary residence.

Rivan Stinson: That gets into, what was a home upgrade, what was this?
That is all for the CPA to figure out, what is your tax?

David Muhlbaum: Yeah, because the crux of that is this exclusion in
the capital gains on the sale of a house.

Rivan Stinson: Correct.

David Muhlbaum: Now, those values are, what are they, $250 for a single?

Rivan Stinson: $250,000 for single, $500,000 for a married couple.
That is how much of a sale you can exclude-

David Muhlbaum: From a capital gains tax level, right.

Rivan Stinson: Yes.

David Muhlbaum: So, let’s run some numbers here. What’s bringing that
capital gain exclusion to the fore is in part the run-up in home
prices. The $250,000 and $500,000 exclusion, hasn’t changed, but home
prices sure have, and have gone up. Rivan, you had in your piece, and
you actually used a sample with dollar values. I want to walk through
it because I think it’s a good example of how this actually works.
What you said is, that you had a scenario where let’s say you and your
spouse bought a house 20 years ago for $200,000. Today you sell it for
$800,000. So, that’s a profit of $600,000.

Now, in theory, you would have $600,000 in capital gains and only
$500,000 of exclusion, so you’d owe capital gains tax on that $100,000
dollars. But if you had done renovations, you had remodeled the
kitchen, the bathroom, replaced the garage door, whatever, and those
all totaled up to and were using round numbers here, $100,000, then
boom, even-Steven, no tax.

Rivan Stinson: Correct.

David Muhlbaum: But to do that you need those documents.

Rivan Stinson: Correct. Because things like home maintenance such as
painting and your general repairs do not count for that. So, to say on
the safe side, you might as well keep everything that’s big. It just
makes the CPA’s job easier.

David Muhlbaum: But this could be literally that file folder full of
like, “This is the tile samples, and here are the five punch list
things.” Right?

Rivan Stinson: Correct.

David Muhlbaum: Digitize.

Rivan Stinson: Yes.

David Muhlbaum: Don’t take it with you.

Rivan Stinson: This is the fancy faucet that I bought for my remodeled
kitchen. You got to know that.

David Muhlbaum: Right.

Sandy Block: I think either scan or just keep receipts for all of that
work that you had done. Because you don’t want to be calling up your
contractor on April 14th saying, “I need all these receipts for roofs
and fences and upgrades.”

David Muhlbaum: That is the most fictional thing I think I’ve ever
heard. You’re going to reach a contractor from 20 years ago to give
you details about the job that you both left in a huff. Yeah, that’s
just not going to happen.

Rivan Stinson: Yeah. So, my suggestion there is if you are really
paranoid person, and this will be my mother, she did it both. She does
have a box, a plastic bin, that has all of her stuff in it. She told
me where I can find it because she did some replacements and all that.
I think she’s also scanned it. So, you can do both. It’s more so if
the original document gets destroyed, you have a backup to prove
everything.

David Muhlbaum: Right. Well, the destruction, which was the theme of
your most recent piece about financial emergencies in the time of
serious natural disasters, we talked about the safe deposit box is
where to bring things. But we had situations with the fires in
California, and Australia for that matter, where places with safe
deposit boxes were burned. It’s unlikely, it’s improbable, but it’s
kind of unnerving.

Rivan Stinson: It is. For that, I would ask the bank, how do they
protect those safe deposit boxes? This is why it’s important to, at
least if you can, grab your driver’s license or passport because that
will be your starting point to rebuild your life. Again, most of these
things we’re doing now are on the web, or it’s a scan, you just need
to log in.

Maybe you don’t need your birth certificate today, but you do need to
get into your bank account. That would be more important. You just got
to remember your bank account login. If you don’t remember that, now
where are those passwords? Did you back the passwords up with either a
friend or family? Do you use a password manager, such as LastPass,
which does have an emergency feature to allow others into it if you
can’t? Do you use something like a Google drive? Do you keep things in
your Apple iCloud? Anything that can make this quicker for you to do.

Rivan Stinson: Even if your iPhone or Mac gets destroyed, as long as
you remember your Apple ID and password, you can reset all that stuff.
If you are prone to forgetting, I would suggest you share it with
someone that is a trusted friend or family, because Apple does not
have an emergency access feature.

David Muhlbaum: Yes, I know from personal experience that an Apple ID
is a difficult thing to get a reset on, but there are others that are
worse. As you mentioned, getting a duplicate birth certificate or a
Social Security card, but not impossible.

Sandy Block: Not impossible, and I think that’s why you want to scan
all this stuff. Because if worst case, the bank burns down with your
safe deposit box and those documents in it, you can track them down.
It’s going to take some time, but I have done this, you can get your
birth certificate if you know where you were born. You can find these
things, but having the originals digitized will speed up the amount of
time it takes to track them down.

Rivan Stinson: Correct. If you don’t know what office to go to, I
believe the article has where you should go. I think David will list
that within this podcast link. But as Sandy said, you can replace your
birth certificate. Replacing your Social Security card is easier now,
too. Again, you log onto the Social Security Administration website.

Sandy Block: Yeah, I recently replaced my Social Security card. It can be done.

David Muhlbaum: In the end, what it comes down to is doing the work
ahead of time. We think of disaster prep as things like … Well, are
the gutters cleaned is kind of basic. But if you live in a fire zone,
create a defensible area, making sure that your roof doesn’t have
brush or needles on it. I’m revealing that I don’t live in a fire
zone, but I know there are things you should do. But some of that prep
work is just sitting down with the computer, with the phone, and doing
the administrative work.

Rivan Stinson: Yes. Make it fun. I do all my administrative tasks with
a glass of wine, it’s great. Yes, you just have to sit there, and you
also have to tell people where they are. I will say I appreciate the
fact that every time I come home, my dad tells me exactly where his
safe deposit box key is. It’s a little unnerving to keep talking about
his impending death, but at least I know where things are.

Sandy Block: Since we’ve been talking so much about safe deposit
boxes, I think it’s important, because we got mail on this, to remind
or advise people that you should not keep estate documents in there.
The reason for that is if you die, and your relatives don’t have
access to your safe deposit key, they’re not going to be able to get
to the information that they need to settle your estate.

Sandy Block: Now, in Rivan’s case, her dad tells her where the key is.
But unless you have the key, if your name isn’t on the safe deposit
box, you can’t get these documents. It will be kept with your lawyer,
or with your executor. You could digitize, but don’t leave the
original copy of your important healthcare proxy, or estate documents,
in your safe deposit box, because you could be in a situation where
people who need them cannot get them. We get a lot of mail on this, so
I think it’s important to point it out.

David Muhlbaum: I have a couple more details on the will thing. I
believe, in some states at least, this was the case in Virginia, the
lawyer was able to essentially file the document with the courthouse,
so the document is sort of always there. It’s with a seal at the
court.

Rivan Stinson: That’s right. That reminds me of something I learned
through research. If you don’t know, ask your financial planner, if
you have one. Ask your doctors when it comes to healthcare proxies.
Ask people, “Do you have a system to store this in case something
happens to me?” Particularly if you don’t have family close to you to
get to that.

Sandy Block: One of the things Rivan noted in her story is that if
you’re gone and no one has a safe deposit box key, the bank doesn’t
keep a master. Someone has to hire a locksmith to bust into your box.
It’s not like you can tell the bank, “I lost the key. Let me in.” They
won’t do that. It’s important that you have some kind of backup, some
kind of system. Don’t assume that people can get at documents in your
safe deposit box if you’re not around.

David Muhlbaum: Well, to go back to the disasters, that we’ve dragged
Rivan into being our disaster professional, we’re recording at the
start of what we historically have thought of as, well, disaster
season, if you will. Wildfires, hurricanes, of course, New Mexico’s
already on fire. But I think it would be good, Rivan, if you gave us a
reprise, partly from last year, but partly because it’s still an
issue, homeowner’s insurance. What it does do for you in disasters,
what it doesn’t, and how do you fill those gaps?

Rivan Stinson: First off, talk to your insurance agent before a
disaster happens. If you live in an area that is prone to anything,
you need to understand how it works. For example, say you live in
Florida. High winds for a hurricane. If damage is done by the winds,
that’s a separate deductible. Or if your house is flooded, that is not
covered by your standard homeowner’s insurance policy. That is a
different policy that you have to buy through to someone else. With a
wildfire, nine times out of 10, the insurance will cover the cost of
replacement. The issue is you can’t change coverage in the midst of a
disaster, whether it’s a wildfire, floods, a known storm, or a
tornado. You can’t call your insurance and be like, “Hi, I think I
need to add some more coverage to my home.” They’ll be like, “No, we
can’t sell you anymore.”

Rivan Stinson: They will stop business and restart at a predetermined
time. That can be a little bit after even the storm is passed because
they don’t want a spike in claims. You have to do that administrative
in-house work months before, just to make sure you’re covered. Again,
if you’re not sure if you have enough coverage, talk to your insurance
agent. They should have tools to help you estimate things, in terms of
if you keep expensive jewelry at your home, if you have expensive
tech, considering all of us have been working from home the past two
years. If you don’t know, ask.

David Muhlbaum: Mm-hmm.

Sandy Block: One other thing you mentioned in your story, Rivan, is
that a lot of people may not have enough coverage because of
inflation. Prices have gone up, and in the aftermath of a disaster, a
lot of times labor and other supplies will cost a lot more. People
need to make sure that the coverage they have now is really going to
make them whole if they lose their homes, correct?

Rivan Stinson: Correct. For that, you really want to ask about an
extended replacement rider. This should help you cover the cost of
inflation and things like that. This also, comes back to, remembering
your home upgrades. If you upgraded your home, but haven’t upgraded
your homeowner’s insurance, that is going to take the cost of building
your home way up. You need to let them know what kind of materials.
You also get discounts. If you put on a new roof, that’s an insurance
discount, but they also need to know so that you can be properly
insured.

David Muhlbaum: Well, it’s good advice. There’s an undertone here of,
“Do the work, people.” I’m sorry about that, but in the end, we’ll all
be better off. Thanks so much for walking us through it, Rivan,
appreciate it.

Rivan Stinson: No problem.

David Muhlbaum: That will just about do it for this episode of Your
Money’s Worth. If you like what you heard, please sign up for more at
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Please go back and add a rating or review if you haven’t already. To
see the links we’ve mentioned in our show, along with other great
Kiplinger content on the topics we’ve discussed, go to
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