Financial Records: 12 Tips For Deciding What To Keep or Toss

By on March 8, 2012

Tax time is upon us — so now is a great time to whip your records into shape! Here is a breakdown of what you really do need to keep – and what you can safely toss.

KEEP IT!

  • Tax records. This includes not just your returns, but all documentation used to file your return (W-2s, 1099s, receipts or cancelled checks for things like charitable contributions, alimony, etc.). How long:  Seven years.  Generally the IRS can go back three years for an audit, but can go back up to six if a “substantial” (25% or more) error is identified.
  • Year-end retirement plan statements.  As noted below, you’ll be discarding your quarterlies and will be keeping only annuals.  How long: Until you retire or close the account.
  • Year-end loan statements. As noted below, you’ll be discarding your monthlies and will be keeping only annuals.  How long: Until the loan is paid off; however, always keep the final notice documenting that your loan has been paid off.
  • House-related records. Keep documentation related to the purchase of your home, permanent improvements (remodeling, additions, etc.), and the sale of your home.  How long: Until you sell the home, plus seven years.
  • Brokerage account (non-retirement) statements.  Retain documentation of securities purchased outside of a retirement account for capital gains purposes later.  How long:  Until you sell the securities, plus seven years.
  • Receipts for large purchases.  Keep your receipts and/or appraisals on big-ticket items such as jewelry, artwork, appliances, etc. for insurance purposes.  How long: As long as you own the item.

 

TOSS IT!!!

  • Utility, phone, internet bills. The exception is if you operate a home business and need these for tax purposes.  Otherwise, get rid of them — and going forward, sign up for paperless billing.  You can always request copies from the service providers if you need them for some reason.
  • Receipts for everyday purchases.  The exceptions are receipts you need for company reimbursement or for tax purposes.  Otherwise, establish a system for getting rid of these things.  My statute of limitations on receipts is one month.  Have a special envelope to store them, and then trash them monthly.  Extend this time frame if you’re uncomfortable with the monthly suggestion — but no longer than three months.
  • Bank statements. Unless you need copies of cancelled checks for tax purposes or company reimbursement, do not hold on to these.  They can be requested online from almost any bank going back several years.  In addition, check to see if your bank has a paperless statement option.
  • Quarterly retirement plan statements. Keep these only through the current year.  Once you get your year-end statement, validate that each statement lines up with the last and then get rid of the quarterlies, retaining only the year-end.
  • Quarterly or monthly loan statements. Keep these through the current year, reconcile with your year-end statement, then get rid of everything but the year-ends.
  • Important Note. It is imperative that you invest in a shredder and take the time to shred any document with information such as account numbers or social security numbers!

A final word on hard copies vs. electronic:  If you are hard-core about minimizing the paper in your house, by all means scan your documents and go 100% electronic.  The IRS accepts electronic documents so you’re fine in their book.  The most important thing to remember if you choose this route, is to BACKUP YOUR FILES!  Copy everything onto an external hard drive and keep it somewhere safe.  If you do wish to retain hard copies, maintain a small, organized, and well-labeled filing cabinet; just remember to be disciplined with housekeeping!

Here’s more information on how to purge your financial clutter and how long you should keep financial records.

Ginger Dean is the Founder and Editor-in-Chief of the award-winning Girls Just Wanna Have Funds,™ empowering women in personal finance. Her work has been seen on Business Insider, Essence Magazine, The Wall Street Journal, MSNBC and Good Morning America.  Follow her on Twitter@twitter.com/Gingerlatte, and on www.Facebook.com/Girls Just Wanna Have Funds.

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