How Long Should I Hold Onto Financial Documents?
Years and years worth of backed-up paperwork will require some spring cleaning after determining what should be kept on file indefinitely and what should be tossed.
The mountains of paper in the corner of your house are compiled of bank statements, receipts and other personal documents. A family of four can generate over a thousand financial statements and receipts each year. It seems easy enough to just throw them out with the trash or recycle them.
Care should be taken when throwing out documents and financial statements that may be magnets for would-be identity thieves.
The garbage and recycle bin may hold valuable personal information which can be compromised. With many financial institutions offering options such as online statements as opposed to paper statements, this can cut down greatly on the clutter and help you get more organized.
When you take on the task of going through financial statements, use a cross cutter shredder to destroy any and all personal information such as account and social security numbers.
Financial documents such as tax papers and W-2s should be kept typically up to one year after filing. Taxes can now be prepared online which also helps cut down on unnecessary paperwork. According to the IRS you have up to three years to file an amended tax return and the IRS has up to six years to audit you. Along with this, IRS publications 552 says to "keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Come." This can mean that you should keep them for a long time just in case anything arises from the IRS.
Any documents that are related to investments and real estate should be kept up to seven years past the sale date. These can include remodeling projects, year-end brokerage statements and retirement account statements.
Pay stubs and vehicle paperwork such as a bill of sale can be kept up to a year. Smaller documents such as receipts from debit or credit cards can be kept in a file and discarded once you match them with your monthly statement. If payments were made with cash, brush up on your accounting skills and record these transactions. When making large purchases with a cash file, the receipt in case you want to return it or claim the warranty.
You can throw out most receipts right away but some you may need to keep briefly and some indefinitely for tax purposes. Household bills, loan and credit card statements don’t need to be held onto especially since you can pay them online. Despite what many people may assume, digital copies of records are actually safer and faster than traditional mail methods.
Documents that should never be thrown away are the obvious ones:
- birth certificate
- military documents
- marriage license
- updated legal documents such as wills
- living trusts and estate plans
Consider scanning documents and storing them on an encrypted flash drive or a remote backup service such as Carbonite. Use a combination of both of these storage options to make sure you have all of your information backed up. Any paperwork that is scanned with an original signature or notary seal should have the original copy stored away.