What Financial Documents to Keep - Downsizing Your Filing Cabinet

What Financial Documents to Keep - Downsizing Your Filing Cabinet

Knowing which sensitive documents to keep and which ones to toss can be a tricky proposition. I admit I have a stack of old ATM receipts sitting in a drawer at home (why? I have no idea). Indeed, some documents can, and should, be kept indefinitely. But the vast majority of your paper file can likely be discarded. Here’s a list of which documents should be held for how long:

Keep for a week or less:

  • Bank deposit slips and ATM receipts can be trashed as soon as you record the transaction. If you’re comfortable with online banking, you can opt to have ATM receipts delivered to your inbox to avoid the paper clutter altogether.

Keep for a year:

  • Credit card statements and transaction receipts should be kept until you file your tax return. I like to keep a trailing 12 months’ worth of credit card statements, but this may be overkill.
  • Pay stubs can be tossed after reconciling them with your W2 statement.
  • Paper bank statements and cancelled checks should also be kept until you file your tax return. Using paperless banking can eliminate the need to maintain paper copies.
  • Monthly investment account statements should also be kept for one year, and can be shredded once dividends and capital gains have been reconciled with your tax return.
  • Medical receipts can be trashed after tax filing season.

Keep for 7 years:

  • Documents that support your tax returns – 1099 statements, W2, charitable contribution receipts, and other documentation used to support deductions.

Keep forever:

  • Tax returns – the IRS has three years in which to conduct an audit; however, there is no statute of limitations on audits if they suspect fraud.
  • Annual statements for investment and retirement accounts should be kept for as long as possible, especially transaction records which contain cost basis information (pre-2011). It is now the responsibility of your brokerage firm to track cost basis, but this only became law in 2011.
  • Receipts for home improvements should be kept for tax documentation until you sell the home.
  • Receipts for big purchases (television, jewelry) for insurance documentation should be kept for the life of the item.

Legal documents:

Any physical document that is evidence of a legal proceeding, activity or occurrence should be maintained in a secure location such as a fire-proof and theft-proof safe or a bank safety box. While you may find it convenient to scan copies for digital storage, a physical copy should always be maintained and accessible by family members. This includes:

  • Birth certificates
  • Citizenship papers
  • Custody agreement
  • Deeds and titles
  • Divorce certificate
  • Loan/mortgage paperwork
  • Major debt repayment records
  • Marriage license
  • Military records
  • Passport
  • Powers of attorney
  • Stock certificates
  • Wills and living wills
  • Anything with an original signature or a raised seal

A word about shredding:

Generally speaking, if a document does not contain an account number or Social Security number, it doesn’t have to be shredded. That said, any document with personal information can present a privacy risk. If you own a cross-cut shredder or have access to one, you might as well shred everything that could be used to steal your identity.

A word about electronic recordkeeping:

Your computer is a wonderful tool, and a secure hard drive or cloud-based storage medium is a great way to maintain sensitive document records. However, documents in the “7 years or more” categories should still be kept in physical form.

*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2014 Advisor Websites.

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