A Guide On How Long To Keep Financial Records

By Mark Di Vincenzo. May 7th 2016

Are you a pack rat? Do you keep your children’s second-grade spelling tests in a box in the attic? Do you have a four-foot stack of newspapers in your garage that you think you may need next winter to help start fires in your fireplace? Can you dig up the water and sewer bills you paid in the 1980s?

Even in this day of electronic records, a lot of people have filing cabinets in their basements or home offices that are stuffed with financial records and other documents that they haven’t needed for years -- and won’t ever need again.

In this article, we’ll address how long you should keep your records, everything from credit card and bank statements to paycheck stubs, tax records and passports.

Tax Returns

Keep them for seven years after you filed them. More conservative tax preparers recommend 10 years or more, but seven years has become a pretty standard recommendation. Those who say seven point out that the IRS has three years to audit a tax return if it suspects unintentional errors were made and six years if it believes someone underreported income by at least 25 percent. Many accountants interpret the federal statute to mean that six years doesn’t start until the year following the tax year, so play it safe and hang onto your returns for seven years. The most conservative tax preparers – and they are in the minority -- advise their clients to never discard tax returns because the IRS has an unlimited amount of time to audit you if it suspects fraud. (To learn how to decrease your chances of an IRS audit, see 5 Tips To Avoid An IRS Tax Audit.)

Individual Retirement Account Records

This is one of those times when it pays to have that pack-rat mentality. In some cases, some financial advisers recommend that you hang onto IRA records forever. If you made a non-deductible contribution to an IRA, such as a Roth, keep the records indefinitely. You will want to prove that you already paid tax on this money when you withdraw it. (For more information on the different types of IRAs, see Differences Between Roth And Traditional IRAs.)

Other Retirement Records And Savings Statements

Retain the quarterly statements from your 401(k) accounts or other retirement and savings plans until you receive the annual summaries. Assuming the annual statements look right, shred the quarterly statements. Keep the annual summaries until you close the accounts.

Bank Records

Keep statements for a year that have to do with your taxes, business expenses, home improvements and mortgage payments. Shred records that are unrelated to these things.

Brokerage Statements

The general rule is to keep these statements until you sell the securities. Whether or not you do your own taxes, you will need these statements to prove if you have capital gains or losses at tax time.

Bills And Receipts

Keep these from anywhere from one month to several years, depending on what they are. If you pay a bill with a check, you can shred the bill after the canceled check has been returned. Or if you receive a bill and it shows that you paid last month’s bill, you can toss it. If you need to know what you paid at a later date – for tax reasons, for example – you can get a copy online. But when it comes to receipts for big-ticket items, such as jewelry, pricey Oriental rugs, appliances, antiques, cars, and computers, keep them for as long as you own them so you can prove their value if they are lost, stolen or damaged.

Credit Card Statements

Keep these for one month or seven years. If your statement accurately reflects that you paid last month’s bill, shred last month’s bill. If you need the bill for tax reasons, keep it for seven years, along with your other tax records.

Paycheck Stubs

Keep these for one year. When you receive your annual W-2 form from your employer, shred the stubs after the information on your stubs match what is on the W-2. If it doesn’t match, request a corrected form, known as a W-2c.

Real Estate Records

Keep at least six years or longer. Records that have to do with selling and buying your house, such as legal fees and your real estate agent's commission, should be kept for six years after you sell your house. Keep records that show the purchase price and the cost of all permanent improvements, such as remodeling, additions and installations, for six years after you sell. Save these records because improvements you make to your house, as well as expenses associated with selling it, are added to the original purchase price, and that is known as the cost basis. This will lower your capital gains tax. (For more on the capital gains tax, see Understanding The Rules Of The Federal Capital Gains Tax.)

Miscellaneous Records

Here are some records that you not only should keep forever but you should take out of your filing cabinet and store in a safe or in a safe-deposit box: birth and death certificates, adoption papers, citizenship papers, marriage and divorce papers, immunization records, passports, Social Security cards, wills, estate plans, living trusts, and powers of attorney.

Still not sure how long to keep your records? Call a financial adviser, accountant or estate lawyer. Also keep in mind that many of the records and statements listed here can be sent to you electronically. Keep electronic versions and sell your filing cabinet.

Sources

  • IRS
  • USA.gov
  • Interview with accountant Michael Mendelsohn of Dixon Hughes Goodman LLP, Newport News, Va.

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