Personal Finance 
39
comments

How Long Should I Keep Financial Documents?

Email  Print Print  

Document Storage!We recently purchased a sheet-fed scanner, the Fujitsu ScanSnap S300, to help organize our financial records and this purchase is easily one of the top ten I’ve made in my adult life. We went from having a few banker’s boxes of documents down to just a few in about a week. Using a sheet-fed scanner, versus a flat-bed scanner like a copier, can save you a ridiculous amount of time and the ScanSnap will save your document into a PDF. It’s a big pricey but definitely worth it if you’re looking to save things electronically.

One of the benefits of storing documents electronically is that it makes the “how long should I keep financial documents?” question a bit obsolete. Data storage is cheap so you can save documents forever, but I think it’s still important to know how long to keep documents because it gives you a better understanding of finances. Knowing why you should keep tax records for seven years gives you a better understanding of the tax process.

So how long should you keep financial documents? It depends.

The following documents are separated by the time you need ot keep them, excluding obvious “keep forever” documents like life insurance policies (shred when they expire) and estate planning (I suppose someone can shred these when you expire!).

Keep for a Year or Less

  • Bank Statements – Review when you receive them, for unauthorized purchases, and keep the most recent one.
  • Retirement/401k Plan Statements – Keep the most recent annual summary and most recent quarterly summary. Make sure they match what’s in your account and dispose of old statements.
  • Monthly Bills – Review for accuracy but there’s no need to keep them (you might want to keep them for other reasons, like comparing year over year usage if your utility doesn’t provide that information).
  • Credit Card Bills – Review your bill for any billing errors, otherwise shred them (or opt for electronic delivery and save them to a directory forever). Credit card companies have all of your statements online anyway.
  • Paycheck Stub – One year. Keep them and compare them against your W-2. If it doesn’t match, go to your employer and request a change to your W-2. Otherwise, you can shred the paystubs (your W-2 is good enough).
  • Insurance Policies – Keep the most recent one, the older policies on longer apply so you won’t need them.

Keep for 7 Years

You’ll want to keep taxes for seven years. You have three years to file an amended return if you think you’re due a larger refund and the IRS has three years to audit you if they think you made a mistake. The IRS has six years to audit you if they think you underreported income and there is no time limit if they think you failed a fraudulent return.

If you’ve lost old tax returns and would feel better if you had a copy, you can request a copy of past tax returns from the IRS. You can get a tax return transcript for free in about two weeks by calling 1-800-829-1040 or order it by mail using Form 4506T. The transcript contains almost everything from your Form 1040/1040A/1040EZ.

Keep Forever or Indefinitely

  • IRA Contributions – Indefinitely. If you made a nondeductible contribution to a Traditional IRA, keep documentation forever because it’s your proof that you made a contribution and already paid taxes on it. You don’t want to pay taxes twice on it and this proves it.
  • Brokerage Statements – Keep statements that record purchases until you sell the security, to document any gains or losses.
  • Loan Documents – Keep these for the life of the loan and destroy once you’ve paid it off and have title in possession.
  • Home Records – Keep all of those bills for improvements until you sell (and then for 7 years after, since they become tax documents) because improvements increase the cost basis of your home. You’ll also want to keep all the other expenses related to a sale (agent fees, lawyer, etc.) to increase your cost basis too.
  • Receipts – Keep anything documenting a major purchase or improvements for insurance purposes (including 90-day purchase protection from credit cards), otherwise discard.
  • Savings Bonds – Do yourself a favor and convert any paper bonds you have into electronic bonds at TreasuryDirect.gov. Otherwise, keep these for the life of the bond.

Always Opt for Electronic Statements

If given a choice, always opt for electronic or paperless statements. This helps the environment (no mailing, no paper) and it saves you a lot of time. You don’t need to scan a statement if it already comes in PDF form, so save the Earth, save yourself some time, and opt for electronic statements. You can keep these statements around forever and you never know when you might need that information.

If you do opt for electronic statements, download them. If you have a copy, you never need to rely on the data storage practices (or lack thereof) of the bank, credit card, lender, broker, whatever. If you close your account, they won’t keep your records. If a bank fails, they will have records but you won’t have access to them (see this harrowing tale from Fatwallet), making everything just a little bit harder. So if you do opt for electronic statements, remember to download them.

Did I miss an important document? I’m not yet 30 so there may be documents I’m simply not aware of!

(Photo: mucio)

{ 39 comments, please add your thoughts now! }

Related Posts


RSS Subscribe Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.

39 Responses to “How Long Should I Keep Financial Documents?”

  1. Kevin Stoner says:

    I’m trying to figure out how to deal with this to get rid of some of our extra junk. Instead of an online backup, I may just put everything on a flash in store it in a fireproof safe, and possibly have a second copy stored elsewhere.

  2. Windjammer2 says:

    KEEP YOUR EARNINGS RECORDS FOREVER!

    Eventually everyone will want to confirm their earnings records with data at Social Security. If there are errors and you do not have proof of earnings you will be S.O.L.

    Trust this advice… I worked for SSA for over 15 years and have had to try to reconcile my own earnings records. You just HAVE TO keep these records unless your are willing to be a victim of record keeping errors or the failure of long-past employers who failed to report your earnings to SSA.

    This “keep for 7 years” advice is wrong but is still spread by virtually financial advisors.


Please Leave a Reply
Bargaineering Comment Policy


Previous Article: «
Next Article: »
Advertising Disclosure: Bargaineering may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.
About | Contact Me | Privacy Policy/Your California Privacy Rights | Terms of Use | Press
Copyright © 2014 by www.Bargaineering.com. All rights reserved.