How Long to Keep Financial Records

A client recently called me looking for guidance on how long to keep her financial records.  Until this point, she used what I call the Hotel California method of record keeping.  You’ll remember that the famous Eagles song concludes with the lyrics; “You can checkout anytime you want, but you can never leave.”  For my client, once a paper was filed, it could never leave its manila folder stuffed inside a desk drawer.  As a result, her filing cabinets were bursting at the seams with bank statements, receipts, bills and other “important papers.”  So, if your recent tax return is still sitting atop your desk because there’s no more room in your filing cabinets, this article is for you.

Keys to Success

Knowing what records to keep can sometimes be as easy as knowing why you need to keep them. In general, paperwork is kept for death, taxes and proof of ownership.  For example, your wills and life insurance policies are filed so they can be found when you’re no longer around.  Tax returns and supporting documents are kept in case you’re ever audited by the IRS.  Receipts and warranties for big purchase items should be filed until you can no longer return or exchange the item, or until the warranty expires.

So if your filing cabinets are chocker-block full, here are some general guidelines for how long you should keep your documents. 

What to Keep Forever

• In Case of Emergency File (a list of where your important papers, files and passwords can be located, along with the names of whom to call for more information).
• Birth Certificates, Marriage Licenses, Adoption Papers, Divorce Decrees, Death Certificates
• Wills, Trusts, Power of Attorney, Health Care Proxy, Gift Tax Returns, Estate Planning Documents
• Record of Paid Mortgages, Student Loans, Car Loans, etc.
• Record of nondeductible traditional IRA contributions or conversions to Roth IRAs (IRS Form 8606)

What to Keep While Active

• Insurance Policies (life, disability, homeowners, long-term care, etc)
• Annual Investment Statements (you can toss the monthly and quarterly ones)
• Records of Pension Plan
• Deed to your home, Stock Certificates, Title to your car
• Receipts and Warranties for major purchases
• Home Improvement Records (for calculating the gain or loss when home is sold)
• Contracts
• Passport

What to Keep for 7 Years

• Tax Returns and supporting documents (some CPAs counsel to keep these forever).  See Publication 552 for IRS recordkeeping guidelines (www.IRS.gov)
• Bank Statements, Cancelled Checks, Check Registers
  

What to Keep for 3 Years

• Household Bills
• Credit Card Statements
• Paycheck Stubs (keep just your year-end stub if you worked for the same employer all year)

What to Keep for 1 Month

• ATM Receipts (until reconciled with monthly bank statement)
• Sales Receipts (until reconciled with credit card statements, or for warranty)

Protect Yourself by Shredding

Now that you’ve identified what is important to keep and what is just taking up space, you’re ready to purge the stuff that has no importance.  Before sending these papers to the trash, remember to protect yourself from identity theft by shredding everything that has your social security number or account information.  A great way to do this is by supporting the non-profit Mansfield Shredding Center on Main Street in downtown Mansfield.   Since 2008, Mansfield Shredding www.mansfieldshredding.com has been providing secure, confidential and compliant document destruction to Mansfield and surrounding communities, while also creating jobs for disabled adults.

About this column: Steve Davis is a local CERTIFIED FINANCIAL PLANNER™ who has been helping clients for more than twenty years.  You can find out more about Steve and his company, Davis Financial at www.talkwithdavis.com 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

Securities offered through LPL Financial Member FINRA/SIPC