How Long Should I Keep Financial Documents?
Part of any good long-term financial plan requires a careful evaluation of past
, present, and future fiscal status. Just as your physician's office keeps careful medical histories for you and your entire family, so to does your financial advisor work best with a careful record of your financial history. Not only will it help provide complete information on your finances, but many of these types of documents are necessary for IRS audits, getting loans, or even landing certain types of jobs.
But even the most organized person in the world will eventually hit a wall when it comes to saving and filing financial documents. There's only so much space to keep paper records intact, and after a few years, many of them serve no real purpose. If you'd like to stay current with your records, the following timelines are recommended.
Tax Paperwork
All tax-related paperwork (including your tax returns as well as the receipts, canceled checks, and interest information used for deductions) should be kept for seven years. The IRS has three years in which to audit you for "good-faith errors" (those made by mistake), and six years in which to audit you if they suspect you've underreported your gross income. Note that there is an unlimited amount of time in which the IRS can audit you if they suspect a fraudulent return.
Retirement/Brokerage Plans
IRA contributions should be kept forever or until you withdraw the funds. These will come in handy should you need to prove that you already paid taxes on the funds.
Other retirement plans should be kept on an annual basis; as long as you have one accurate statement for each year of investment, you should be able to shred any quarterly or monthly correspondence. Keep these annual statements until you retire and withdraw the money.
The same is true for brokerage plans. Keep accurate annual statements for each year that you have your account, and don't get rid of them until you close the brokerage account.
Bank Account/Credit Card Statements
Most financial advisors recommend keeping each monthly statement the bank gives you, and to match the cleared checks with your own records. Keep at least the previous year's worth of information on file at all times.
Credit card statements should be kept on a 60-day cycle unless you've made purchases related to tax deductions (in which case the seven-year rule still applies).
Large Purchases/Home Purchases
If you purchase something large for your home, keep the receipt on file for as long as you possess the item. These receipts can be used to prove the value of the items should there be a theft, fire, flood, or other damaging event in your home.
Car purchase and house purchase information (include major upgrades or repairs) should be kept until you sell the house or car. You may be able to reduce your capital gains tax when it comes time to sell by keeping these receipts on hand.
Pay Stubs
The previous year's paycheck stubs and other income files should always be on hand. These will be necessary for most home loans, business loans, and large personal loans as proof of stable income.
Streamlining Your Personal Records
Although this may sound like quite a chore, you can organize your financial records on a rotating basis, so that you know which ones need to be changed monthly, quarterly, annually, and every seven to ten years.
With the addition of so many online storage options, you might also want to consider getting your statements online or going through and scanning and virtually storing your important documents - especially if space is limited where you live.
by: Wesley Watkis
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