To Keep or Not to Keep: What To Do With Your Financial Records

To Keep or Not to Keep: What To Do With Your Financial Records

You’re bombarded with paper practically every day, and much of it is very important. Documents, records, contracts, bills, statements… how are you to keep it all organized?

Below are some general guidelines to keep in mind when sorting through your papers, though it’s advisable to consult a financial advisor for advice on your personal situation.

Tax records: Some experts recommend keeping all tax records indefinitely, but retaining them for at least seven years is a good rule. The IRS has three years from your filing date to audit your return if it suspects good faith errors, and six years to challenge your return if it suspects you underreported your gross income by 25 percent or more. (There is no time limit for the IRS to investigate if you failed to file your return or if fraud is suspected.)

Credit union/bank account records: Go through your records and keep those related to your taxes, business expenses, housing and mortgage payments. Shred and toss any that have no long-term importance.

Bills: Go through your bills once a year. Once your payment has cleared and there is no dispute with the bill, you can get rid of it. The only bills you may want to keep around are those that document large purchases (jewelry, furniture, computer equipment, appliances, cars, etc.), which should be kept in an insurance file for proof of their value in the event of loss or damage, or anything related to your taxes.

Credit card receipts/statements: Keep all original receipts until you get your monthly statement. Shred the receipts if the two match up. If tax-related expenses are documented, keep the statements for seven years. Otherwise, you can shred them once your payment has cleared and you’re confident no disputes will need to be made.
Paystubs: When you receive your W-2 form from your employer at the end of the year, make sure the information matches your stubs. If it does, go ahead and shred the paystubs. (If not, you may need a corrected form from your employer.)

Home: If you own a house or condominium, keep all records documenting the purchase price and cost of all permanent improvements, such as remodeling, additions and installations. Also, file any records of expenses incurred in selling or buying property, such as legal fees and real estate agent commissions. These should be kept for six years after you sell your home or property.

Retirement/Investment Statements: Keep quarterly statements from your 401(k) or other plans until you receive your annual summary. If everything matches up, shred the quarterlies. Keep the annual summaries until you retire or close the account.

If you made a nondeductible IRA contribution, keep records indefinitely to prove that you already paid tax on the funds when it comes time to withdraw.

Keep purchase or sales slips from your brokerage or mutual funds for documentation of capital gains or losses. Save any dividend reinvestment slips until the end of the year when you receive a summary of all purchases and reinvestments. Keep the annual summaries with your tax records.