Ever wondered how long exactly you should be keeping your financial records? What should you save and what should you shred? Well here's a quick guide on how long to keep your different kinds of financial records.
Note: It's important to keep in mind that, if you don't feel comfortable throwing something out, you should definitely keep it!
Financial records to keep permanently / forever
Some records need to be kept forever just in case and these include important documents like:
- Birth certificates / Adoption paperwork
- Death certificates
- Marriage certificates
- Records of paid off mortgages on housing, land and other property
- IRA contribution statements for non-deductible contributions to prove that you paid taxes
Financial records to keep for things that are active
If you have active contracts, loans or other financial obligations/contributions that are active, you want to keep those records indefinitely. Examples include:
- Insurance documents
- Retirement plan contributions
- Equity/stock records
- Brokerage statements
- Home improvement records
- Property tax records
- Ongoing debt repayments
- Records for items associated with active warranties
- Records for items that have not exceeded their return dates
Financial records to keep for at least 7 years
For certain records, after 7 years it is no longer necessary to keep them especially for things like paid off debts because 7 years is typically the time frame allowable for those items to be challenged. You can keep them longer if you choose. These record types include:
- Tax returns
- Tax-related records e.g. alimony payments, charitable contributions etc
It's also important to keep these guidelines from the IRS in mind as it related to your tax returns (Guidelines pulled directly from IRS.gov):
- Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later if you file a claim for credit or refund after you file your return.
- Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
- Keep records indefinitely if you do not file a return.
- Keep records indefinitely if you file a fraudulent return.
- Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
Financial records to keep at least 3 years
- Canceled insurance policies
- Records of property sales e.g. investments and real estates
- Paid medical bills
- Any documentation that you need for capital gains tax or to support deductions on your tax returns.
Financial records to keep at least 1 year
(Unless required for tax deductions then you'll need to keep them longer - see above)
- Canceled checks
- Paycheck records
- Bill payment records
- Bank statements
So where should you keep your financial records?
The most secure way is to scan and encrypt your records which you can store locally on a hard drive with an encrypted cloud back up. If you are uncomfortable with digital copies, then you can keep paper copies securely in a locked safe that is both fire and waterproof or you can put them in a safety deposit box in a vault at your bank.
The right financial record keeping can save you a ton of stress looking for documents. It also ensures that you are aware of your big financial picture. And very importantly, when you are aware of all your records, you can protect yourself from and quickly identify any identity theft.