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How Long to Keep Financial Records

Know which documents you really need and how long to keep them.

By
Laura Adams, MBA
March 29, 2010
Episode #167

Are you drowning in paper, but not really sure which financial documents are safe to throw away? In this article I’ll tell you what records you really need to keep and what can be tossed.

How Long Should You Keep Financial Records?

I used to file everything and keep it for years and years and years. My filing cabinets were bursting with bank statements, receipts, and bills. I kept stuffing in more manila files and bringing in bigger filing cabinets. My office was like the roach motel—paper checked in, but it didn’t check out. So, I know what it’s like to accumulate a lot of paper. Now, thanks to online banking, I touch as little paper as possible and file only what I absolutely have to. Less paper means less clutter, less work to organize it, and fewer trees to be harvested. So, if you’re up for a little spring cleaning, let’s start by understanding what you can safely throw away and what you really need to keep.

Financial Records To Keep Forever

First off, here’s a list of very important documents that you should keep forever because they’re impossible or very difficult to replace. Keep the following records in a fireproof safe or in a safe deposit box:

  • Birth and death certificates

  • Adoption papers

  • Citizenship papers

  • Military records

  • Marriage and divorce papers

  • Immunization records

  • Passports and social security cards

  • Updated legal documents such as wills, estate plans, living trusts, and powers of attorney

Here’s a quick and dirty tip: It’s also a wise idea to store a list of all your financial accounts, insurance policies, assets, and contact information for professionals, such as your lawyer or accountant in a safe place, too. Knowyourstuff.org is a free online program that takes you step-by-step through the process of creating a home inventory and uploading photos of your possessions. Having that information stored remotely would sure be a life-saver for insurance purposes if your home was ever destroyed!

Financial Records to Keep for the Long-Term

The IRS says to “keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code”.

But what about your financial records? For taxes, you have up to three years to file an amended tax return and the IRS has up to six years to audit you. However, IRS Publication 552 says to “keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code”. I’ll take that to mean … forever. The IRS also says that you should keep your W-2 statements until you begin receiving Social Security benefits. So, I don’t throw away my old tax returns or any of their supporting documents. I recommend that you hold on to them for life as well, because you simply never know what issues could come up in the future.    

As for documents related to investments and real estate, they should be kept for at least seven years past the date you sell them. That includes:

  • Paperwork for the purchase of a home or rental property, such as your closing statement, purchase contract, deed, mortgage, appraisal, survey, title insurance, and inspection reports.

  • Records and receipts for improvements to real estate should also be kept for a minimum of seven years. That might include remodeling projects, a roof replacement, or installing new windows, for instance. Those types of capital improvements increase your cost basis in a property, which can potentially lower your tax bill when you sell it.

  • Year-end taxable brokerage statements should be kept seven years after you sell a security, such as a stock or exchange-traded fund, even if they’re available online. That’s because there’s always a possibility that your brokerage firm could go out of business. Also, brokerage firms have different policies about how long they make electronic records available and how much they charge to retrieve older documents. You need your investment statements to document your capital gain or loss on an investment.

  • Year-end retirement account statements and any roll over or transfer paperwork between custodians should be kept until you retire in case any errors were made. You can shred monthly or quarterly brokerage and retirement account statements after the annual ones arrive.

Financial Records to Keep for the Short-Term

Here are some documents that you only need to keep for a year:

  • Employment records and pay stubs should be kept until you verify that they match your annual W-2 or 1099 statement.

  • Vehicle paperwork such as your bill of sale, lease contract, registration, and warranty should be kept for a year after you sell it.

  • Bank statements for accounts such as checking and savings should generally be kept for a year, unless you have online access to them. If they contain tax-related items, such as charitable donations or medical expenses, however, always file a copy with your tax records.

  • Insurance policies should be filed or kept in a safe place as long as you own them. Shred old polices after they’ve been replaced by a new one or after you sell the asset. If you make an insurance claim, keep the paperwork for a year after you receive payment. But if the claim was tax-related, such as for a large medical expense, keep the documents for at least seven years.

Financial Records You Don’t Need to Keep 

You’ll be glad to know that there are many records that you don’t need to keep, like your everyday household bills and loan and credit card statements. So opt to receive them as e-bills or e-statements and pay them online, if you can. Digital copies are safer and faster than relying on snail mail. Plus you won’t have to handle any paper and can still print a copy if you need one for tax purposes. That might be the case if you have a home office, for instance.

How to Handle Receipts

For debit card and credit card receipts, keep them in a “receipts” file until you match them to your monthly statement or online account records. Then you can shred them. Your receipts for purchases made by cash should be saved until you enter them in your accounting records or budget register. Yes, it’s critical that you keep up with your cash transactions, too! However, when you make a large purchase for something like electronics or jewelry, always file the receipt in case you need to make a warranty claim or prove the item’s value to your insurance company. And of course, save all receipts that you may need for tax purposes.

Keeping Electronic Records

Now that you know what you really need to keep, you might consider scanning those documents and storing them on an encrypted flash drive, external hard drive, or a remote backup service like Carbonite, instead of filing the hardcopy. To be safe, use a combination of those storage options to make sure you’ll never lose your data. The IRS considers digital document copies just as good as the originals. However, any paperwork with an original signature or notary seal, like a will or contract, should never be thrown away, even if you scan it for a backup copy.

Download FREE chapters of Money Girl’s Smart Moves to Grow Rich

If you like the tips you got in this article and want to take more control of your money, I think you’ll like my book, Money Girl’s Smart Moves to Grow Rich. The book tells you what you need to know about money without bogging you down with what you don’t. It’s available at your favorite book store in print or as an e-book for your Kindle, Nook, iPad, PC, Mac, or smart phone. Read a free chapter here.

Image courtesy of Shutterstock

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