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How Long Should Personal Financial Records be Kept?

Start Purging the Paper Clutter!

April 15, 2011

Many of us have piles of paper records, and it can be hard to know what to keep and what to toss. How long should we keep financial records? When is it safe to shred all those bank statements and receipts?

Tax season forces us to get reacquainted with our finances, so now is a good time to put the shredder next to that pile of paperwork and start purging the old or unneeded items in your personal financial records. Since all of these items contain personal information, we recommend using a cross cut shredder to help avoid identity theft.

Tax Records

  • Tax Returns (Federal and State) – Keep copies of your tax returns and all supporting records until the time that the IRS can examine your return has expired. Generally speaking, that falls between 3 and 7 years from the date you filed, depending on your return. So keep them for 7 years, and then it is safe to shred the supporting documents. Remember, the IRS measures time from the date you filed the return, not any other date. And if you didn’t file a return, or filed a fraudulent return, there is no time limit for the IRS to audit you. We recommend you keep copies of the actual returns indefinitely, including copies of checks made out to the government (IRS or state).
  • Pay stubs - Keep until you get the year end summary. Then keep the summary and shred the pay stubs.
  • W-2’s – Keep all of them until you start receiving Social Security benefits. You may need them to prove your earnings in cases where an employer did not accurately report payroll to the Social Security Administration. It does happen, and without your W-2’s, there is no way to prove your earnings and that you deserve a higher Social Security amount.
  • Non deductible contributions to an IRA or conversions to a Roth IRA – Keep indefinitely tax Form 8606 filed with your tax return the year of the deposit. During retirement you will withdraw from these accounts, and form 8606 will verify that you have already paid taxes on the money.
  • Originals or Scans? – The IRS will accept an electronic copy of your records, so scanning receipts and statements and then shredding the originals is an option to cut down on the volume of paper. If you choose to scan, make sure to keep your computer technology current and use a reliable back-up system. But remember, anything with an original signature or a notary seal (such as wills and contracts) should not be shredded. Even if you make a scan as a backup copy, always keep the original.

Receipts, Bills and Statements

  • Receipts for bank deposits and ATM transactions – Shred them after you reconcile your monthly bank statement or match them against your online account listing.
  • Bank statements – Keep monthly statements for three years. You need them to support your tax returns. File any statements that prove income or deductions with your tax records, and then shred the rest. Better yet, download a copy to your own computer each month from your bank’s website, and shred the paper version.
  • Purchase receipts using a credit card – For personal items, shred the receipt after it appears on your monthly credit card statement. If the purchase is a tax return item, file the receipt with your tax records. For large purchases, staple the receipt to the warranty or owner’s manual in case the item needs repair or you need to file a warranty or insurance claim.
  • Credit card statements – Keep any statements that support a tax deduction, such as a charitable contribution, with your tax records for the year. Also save any statements that show a big-ticket purchase like a TV or appliance that is under warranty. Keep the rest of your monthly statements for one year, then shred. You may want to download a copy of your monthly statement to your own computer from your credit card’s website, and shred the paper version. If you are challenging an item on your statement, keep until the problem is resolved.
  • Receipts for items purchased with cash – Assuming these are minor amounts, toss immediately or keep them only until you are sure you won’t need to return the item. For any large purchases like jewelry or a big screen TV, keep the receipt as long as you own the item for warranty purposes or in case of an insurance claim. It is also a good idea to take a photo of the item for insurance purposes.
  • Bills for utilities, phone and internet – Unless you are claiming a portion of these for a home office deduction, they can be shredded. If you are claiming a home office deduction, file these with your tax records for the year.
  • Annual Social Security statement – When you get a new statement, shred the old one.
  • Home furnishings – Keep receipts and warranties for all major appliances and big-ticket items like electronics. Shred them when you no longer own the item. If you ever need to make a claim, having proof of the purchase price (along with a photo of the item) will make the claims process smoother.
  • Insurance – Keep home, life and car insurance policies and paperwork for as long as you own the policy. Shred old policies if you replace them or after you sell the item. Health insurance records like explanations-of-benefits, receipts and invoices should be kept while treatments are in progress or until they are paid to your satisfaction. If you deduct medical expenses on your tax return, keep the documentation with your tax records.

Home, Real Estate, and Investments

  • Purchase records - Closing statement, purchase contract, deed, mortgage, appraisal, survey, title insurance and inspection reports. Keep these records for as long as you own the home or real estate, plus three years after you sell them. This really means three years from the date you filed your tax return for the year of the sale.
  • Home improvements - Receipts and records of any improvements made to the real estate, such as additions, remodeling projects, or installing new windows. These items, called “capital improvements,” add permanent value and increase your cost basis in the property. This is important to know when you sell, because it reduces your profit on the sale and could, therefore, lower the tax due on the sale. Again, you will want to keep these records for as long as you own the home, plus three years after you sell. This means keep them for three years from the date you filed your tax return for the year of the sale.
  • Investment statements (Brokerage, 401(k), Mutual Funds, Stocks or Bonds) – You need to establish the cost basis and how long you have held the investment when you sell, so keep the monthly statements that show your purchases, if they are not listed on the year-end summary. Keep year end statements, and then shred monthly or quarterly reports. Keep these for seven years after the sale of the investment.

Loans and Retirement Accounts

  • Loans (home mortgage, student loan or a car loan) – Keep all loan documents and statements until you have paid off the loan. After that, be sure to keep the documents that prove you have paid the loan in full.
  • Retirement account statements – Keep year end statements until you retire, and shred monthly or quarterly reports.

What to Keep Forever

Keep indefinitely any document that would be really difficult or impossible to replace, such as:

  • Birth and death certificates
  • Adoption and citizenship papers
  • Military records
  • Immunization records
  • Marriage and divorce papers
  • Passports and social security cards
  • Your most recent versions of legal documents like wills, powers of attorney, estate plans and living trusts, or bankruptcy
  • Records showing your contributions to and withdrawals from retirement accounts such as IRA’s
  • Pension records – Keep all records about a traditional pension plan. Companies do go out of business, and you could need these records to claim your benefit.
  • Permanent life insurance policies, meaning those with a cash value or investment component. For term life insurance, keep the documents only until the term is over.

About Relying on Digital Records

If an electronic copy is available online, such as your bank statements or credit card statements, you can download a PDF copy to your computer and shred the paper versions. It is important to download your own digital copy, and not rely on the bank or credit card company to maintain your records. If you close an account, your records will likely disappear from their website, and banks have been known to go out of business. It is also vital that you keep your computer technology and backup systems up-to-date, so that you can access the stored information. Remember zip drives and floppy discs? Transfer older stored records to current technology products, so your information is always there, and accessible, should you need it.

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