How Long Do I Have To Keep My Financial Records?

May 7, 2015


One of the  most popular questions financial advisors and CPAs field is, "What records to I have to keep, and for how long do I have to keep them?"


The answer is always, "it depends".  Certain documents and records should be kept forever. Some are too important to retain in an ordinary file drawer. One of the best places to retain such items is a safety deposit box at your local bank.  These important records include real estate deeds, trust documents and wills, life insurance policies, automobile titles, stock and bond certificates (though these are better off held in a brokerage account), marriage and birth certificates, Military discharge papers, and passports.


Keeping copies nearby


There may be times when you need to know certain information contained on documents you've placed in safekeeping but don't need the actual document. Avoid the inconvenience of obtaining the original documents by making copies of them. Even better, scan and retain a computerized copy of the document on your PC and back up that information using a cloud storage service.


Records and receipts are essential


There are many reasons to save important records. If you apply for a loan (such as a mortgage ), you will have to provide proof of your income. If you own financial securities, capital gains taxes are based on the price you paid for them on the date purchased. You'll be required to verify this information. Potential tax audits will be far less intimidating if you have kept records to substantiate your tax return claims.


How long to keep the records


Different records need to be saved for different periods of time.  There are no concrete rules about how long records must be saved, so you will often have to use some judgment. The following guidelines may help-these apply only to personal records, business records have different standards:


Short-term (1-2 years)

·         Household bills, except those that support tax deductions that need to be kept for three years (items such as utilities and grocery bills are generally unnecessary soon after they are paid)

·         Paystubs or other income documentation that Is summarized at year end by a Form W-2 or 1099-you can dispose of those details when you get the summary document.


Medium-term (6-7 years)-but maybe longer

·         Bank and brokerage statements

·         Canceled checks and check registers (checks and receipts for major purchases should be kept until three years after the asset is sold)

·         Paid-off loan documents


Long-term (indefinitely)

·         Tax returns

·         Evidence of retirement plan contributions

·         Cost basis information of securities until three years after their sale

·         Medical history information

·         Pension/retirement plan documents

·         Social Security information


Canceled checks do not necessarily prove why a given payment was made, only that the payment was made. Having dated receipts, invoices, sales slips, credit card statements, and bank statements can provide valuable proof if needed, whether for an IRS auditor or an insurance claims adjuster.


Clean out your files annually


Some records and documents can be discarded after all potential usefulness has passed. But records can accumulate quickly and require extensive storage space.


For easier future access, retain disposable records for each year in separate files. That will speed up the year-end cleaning process.


Shred any documents that have any sensitive information like social security numbers, bank account  and credit card numbers!

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