What financial documents should you keep, and for how long?

J. Abigail Mason Wealth Planning

Many of us are not sure how long to retain certain financial records; consequently, we often end up keeping boxes of documents that take up precious space. The list below outlines how long to keep your common financial documents and the time frames for keeping and/or destroying these documents.

Tax returns—seven years.

The IRS has six years to challenge your return if you under reported your gross income by 25% or more. Keep all your supporting data with your returns (i.e., W-2s, 1099s, 1099-Rs, receipts, etc.).

Brokerage statements—one year.

Keep monthly statements for one year and shred them if your annual statement summarizes all activity for the year.

Retirement plan statements—one to seven years.

Keep statements for one year and shred them if your annual statement summarizes all activity. Save annual statements for 3 to 7 years and keep records of non-deductible contributions indefinitely.

Home improvement and other real estate records—until you sell the home, plus another seven years.

The records establish your cost basis in the home and could help lower your capital gains tax on the property when you decide to sell.

Credit card statements—one month.

Shred credit card statements once you check them for accuracy, unless they are your only record of a tax-related transaction.

Pay stubs—one year.

You can shred your pay stubs once you get your W-2, but check to be sure the numbers match before you destroy.

Utility and phone bills—one month.

You can shred these documents once you have received the next statement showing that you paid. Keep the bills if they are needed for tax purposes.

Warranties and receipts—until the item is no longer owned, or the warranty has expired.

Receipts for big-ticket items are necessary to activate the warranty or to replace a defective item; receipts can also be used to prove an item’s value to an insurance company.

Bank records—one to seven years.

Keep monthly statements for one year. Keep bank records related to your taxes, business expenses, home improvements and mortgage payments for seven years; shred those that have no long-term importance.

Insurance policies—until the policy has lapsed or the property has been sold.
Household inventory of valuable items—forever, or until items are no longer owned.

Make sure the inventory is updated when new items are purchased, sold, or given away.

If you follow these guidelines for taking care of your financial documents in a timely manner, not only will you be able to free up space, but also you will have accurate, up-to-date files that can be easily accessed.

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