Some financial documents are worth holding on to, but many of us are not sure how long to retain them for.
I’ve included a list below of some common financial documents and how long I generally recommend holding on to them before it’s okay to discard them.
PRO TIP: Instead of keeping paper files, scan the following items and organize them on your computer. Make sure you back up your computer to an external hard drive or the cloud often so the files don’t get deleted or destroyed!
Tax returns and supporting documents
The IRS has six years to challenge your return if you underreported your gross income by 25% or more. Keep all your supporting data with your returns (i.e., W-2s, 1099s, 1099-Rs, receipts, etc.) for at least seven years in case the IRS comes knocking.
This information can also come in handy if your Social Security earnings history is incorrect or incomplete, so it may be worth hanging onto longer than seven years.
You, your employer and Social Security share responsibility for the accuracy of your earnings record. Since you began working, Social Security has recorded your reported earnings under your name and Social Security number.
The agency updates your record each time your employer — or you, if you are self-employed — reported your earnings. But you are the only person who can look at the earnings chart and know whether it is complete and accurate.
Normally, you cannot correct your earnings after three years, three months and 15 days from the end of the taxable year in which your wages were paid, according to the Social Security Administration.
However, you can correct your record after that length of time if you have proof of your earnings such as a tax return, a W-2 form showing wages earned and taxes paid or a pay stub.
Retirement Plan and Brokerage statements
Most financial institutions will retain a digital copy of your statements for up to seven years by default, so you really don’t need to. Once you get a notification that your statement is available, look at it for accuracy and then forget about it.
If you still receive monthly paper statements, think about keeping them until your annual statement comes and then save the annual statements for 3 to 7 years.
If you make non-deductible IRA contributions, you’ll want to keep the statement with that transaction(s) with your tax documents. You should be including Form 8606 with your tax return every year if you have basis in your IRA, but it’s always nice to have the statements in case you switch tax preparers one year and the Form 8606 is forgotten.
Home improvement and other real estate records
These records establish your cost basis in the home and could help lower your capital gains tax on the property when you decide to sell.
Retain the records until you sell your home, plus another seven years for tax purposes.
Utility bills & CREdit card statements
You can shred these documents once you have received the next statement showing that you paid.
Bank records
Keep monthly statements for one year.
Hold on to bank records related to your taxes, business expenses, home improvements and mortgage payments for seven years.
Insurance policies
I recommend keeping insurance policies until the policy has lapsed (in the case of life insurance) or the property that the policy covered has been sold.
Household inventory of valuable items
Detailed records of what you own can be invaluable for both insurance and estate planning purposes.
I recommend keeping the list in an Excel file (or something similar) that can be updated on the fly and with little effort when items are bought, sold, or gifted.
Share this running list with the executor of your estate — or at least let them know it exists and how to access it — so they have it in the event you pass away. They’ll need it!