How long should you keep financial records?

If you’re like most people, you have a mess of papers piled on your desk at home, waiting to be filed — or something. Even if all your records are tidily tucked away in proper files, the question still arises — How long should you keep this stuff?

Investment statements, bank statements, receipts, tax records, insurance policies, etc. — they all have their own time table for safe keeping. Some records should be kept forever. Others need only be saved for a time. Wouldn’t it be nice to know, so you don’t hold onto documents longer than necessary and don’t toss records you should save?

With tax season just around the corner, now is the perfect time to find out — and start organizing your paper piles and computer files.

We’ve crafted some general guidelines to help you know what to keep and for how long. Still, if you want to be extra cautious, you can always hold onto your records even longer.

But first. Go digital!

Do yourself a favor and save digital copies of your records. There are many advantages to keeping digital copies of records versus paper copies. To name a few: they save space, they are generally more secure, disaster proof (fire, flood, etc.), certainly more friendly to the environment, and easier to find and share.

You will need a scanner to go digital, so if you don’t already have one, now’s the time.

Tax records — Keep 3 to 7 years or more. It depends.

You want to make sure you have everything the IRS might want, should they come knocking.

Typically, the IRS can audit a tax return — and request documentation — three years after you’ve filed a return or two years after you’ve paid the tax indicated in that return. That is unless you under-report your income by 25 percent or more. Then the IRS can look back six years after you’ve filed your return. And in the case of fraud (don’t go there!), there is no time limit.

What to keep short-term

1 year or less

  • Bank withdrawal and deposit slips (until you’ve verified them with your monthly statement)
  • Credit card receipts (until verified with your monthly statement)
  • Prior year statements for insurance policies and investment accounts

Over 1 year

  • Loan documents (at least until they are paid off)
  • Car titles (until you sell your car)
  • Stock, bond and mutual fund purchase confirmations — or annual statements that capture this same information (until you sell the investment)
  • Pay stubs (to verify your W-2 form)
  • Monthly bank and credit card statements (for 3 years, to be safe)
  • Brokerage statements (best to keep at least year-end summary statements)

What to keep mid-term

7 years

Any document that verifies entries on your tax return, including –

  • W-2 forms
  • 1099 forms from banks, brokerage accounts, etc.
  • Tuition payments
  • Charitable donation receipts

What to keep indefinitely

Essential records, including –

  • Birth certificates
  • Death certificates
  • Marriage licenses
  • Divorce decrees
  • Social Security cards
  • Military discharge papers
  • Defined benefit (pension) plan documents
  • Real estate purchase and sales documents (hold at least 7 years after sale)
  • Estate-planning documents like wills, trusts, power of attorney, medical directives, etc.
  • Yearly tax returns (and documentation of payments made to the IRS)
  • Life insurance policies

Once you’ve determined what to save and what to toss, make sure you do it properly.

Safely disposing of unnecessary paper documents

All documents with personal information that you don’t need to keep should be destroyed in a cross-cut shredder. Do not just toss them in the garbage or recycling bin! That’s a good way to invite fraud or identify theft.

Storing your documents securely

Store physical files in a fireproof safe

Paper documents with personal information should be stored in a fireproof safe — not your file cabinet. This includes bank and investment statements, estate-planning documents, pension information, insurance policies, pay stubs, tax documents, etc. — and your safe deposit inventory list.

Protect electronic files with passwords

If your financial records are stored on your computer or in the cloud (highly recommended!), ensure they are protected with a strong password that you frequently change, AND antivirus software. It would be a good idea to store your digitized copies in an on-line document vault, as well. These vaults should be available through your email account, OneDrive, DropBox, Google, your financial advisor, and possibly even your CPA.

Store irreplaceable records in a safe deposit box

For papers that can’t easily be replaced, invest in a safe deposit box for safe keeping. This would include original birth and death certificates, Social Security cards, passports, life-insurance documents, marriage certificates, divorce decrees, military discharge information, titles to real estate property and vehicles, business ownership documents, loan documents and a list of your home’s contents (should you ever need to file a claim).

Advisory services are offered by Joslin Capital Advisors, LLC, an SEC Registered Investment Advisor.

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