If you are like me, you have a mountain of paperwork from your stock transactions, mutual fund statements, credit card bills, and a host of other financial records and financial documents. But, now that you have collected so much, the real question is how long to keep financial records and documents? There are several lengths of time and factors that you should consider how long to keep financial records.
How Long To Keep Financial Records
Financial Records To Keep Forever…
There are several very important financial documents and records that you should keep forever. I personally keep these types of documents at home in a fireproof safe, but other people often choose to keep theirs in a safe deposit box at a bank. Financial records to keep forever:
- Birth and death certificates
- Adoption records
- Citizenship records
- Military records (DD 214, DA638, etc.)
- Marriage and divorce records
- Social Security Cards
- Estate Plans: wills, living trusts, powers of attorney, etc.
Financial Records for Seven Years…
One rule of thumb is to keep most records that you use for the filing of your taxes for at least seven years. It’s been widely reported that the United States Internal Revenue Service (IRS) has seven years to reach back and audit you for most things unless there is fraud or you didn’t file your taxes at all. But, like most things…there’s a little more to it than that.
Typically, the statue of limitations for the IRS only goes back three years. They have three years to audit an individual’s income tax returns. But, recently, they were granted the power to go back up to six years to audit you if you omitted more than 25% of your income.
If you never filed a return or were fraudulent in your return, then there is practically no statute of limitations on how far the IRS can look back at your records. For more information about how long the IRS recommends keeping records, you can check out IRS Publication #552.
Several financial records to consider holding onto for seven years are:
- Information on home purchases and sales, titles, etc.
- Information about rental property
- Year-end annual brokerage statements
- Receipts for improvements you have made to homes
- Old tax returns, W-2s, and any 1099s
- Receipts for losses and income from investments or small businesses
For more information about how long the IRS recommends keeping records for small business owners, check out their recommendations here on the IRS website.
There are several financial documents that you may be holding onto for no reason. There are some items that break the trend typically for how long to keep financial records which can be discarded after a year or even earlier. For items such as your paycheck stubs and bank statements, you can typically shred these documents after receiving the year-end consolidated statement.
And, your old pay stubs can be shredded after you receive your year-end W-2. There are also financial documents that you should hold onto as long as you own the underlying financial product. For example, there is no need to continue holding onto paperwork for insurance policies that are no longer in place.
Receipts for items that are not essential to your taxes can also be shredded after they have posted and been reconciled to your credit card or bank statement. Also, do not forget to ensure that you are properly shredding these items with a good crosscut shredder, and you may also want to consider investing in identity theft protection from a company such as LifeLock.
My home office literally looks like my filing cabinets threw up. I have paperwork everywhere. My problem stems from not always knowing how long to keep financial records. But, following these simple rules can help you unclutter your financial life and your physical space as well.
What about you? Do you hold onto financial records long after you should shred them? I’d love to hear your comments below.