Holding on to certain financial records is a smart move for a number of reasons. It’s the best way to identify errors, provide proof of payments made, or get through an IRS audit without tearing your hair out. However, keeping every financial document can become overwhelming, disorganized, and takes up way too much space. Using an online document storage system such as Pillar makes it much easier to manage piles of paperwork, and has the added advantage of being accessible from anywhere. If you need assistance with record-keeping or figuring out what your financial goals are, it is important to determine which type of personal financial advisor is best for you.
It’s vital to keep financial records secure to protect against identity theft, so be sure that any sensitive financial information stored online is guarded by a trustworthy company, such as Pillar, who prioritizes top-of-the-line cybersecurity. As you discard paper documents, shred anything containing account numbers or personal information. Learn tips on organizing financial paperwork so that you know which documents to discard and which ones to keep.
What Records Should I Keep and for How Long?
Here's a full (alphabetized!) list of all the most important financial documents you probably have in your home or your cluttered inbox and how long you should keep each one (any why).
Records and documents should be retained as follows:
- ATM or Bank Deposit Receipts - Keep until reconciled with your monthly statement.
- Bank Safe Deposit Box - Maintain an inventory as long as it’s active.
- Bank Statements - Keep monthly account statements for 1 year. Annual statements should be kept for 7 years, if they relate to income tax records.
- Bills - Most bills are safe to shred after the payment has cleared. Bills or receipts for expensive items should be kept as long as you have the item, in case you need to make an insurance claim. Bills or receipts for tax-deductible items should be kept for 7 years, with your tax records. Make sure to know how to organize bills so that you will be able to go through them and easily discard when ready.
- Brokerage Statements - Keep monthly or quarterly statements until you have the annual summary. Hold on to the annual summary for as long as you own the security, plus 7 years.
- Canceled Checks - If your bank still sends out canceled checks, keep those related to your tax return for 7 years. Otherwise, reconcile them with your bank statement and send them to the shredder.
- Car Title - Keep until the car is sold.
- Contracts - Keep as long as they are active.
- Credit Card Receipts - Keep until reconciled with your monthly statement.
- Credit Card Statements - Keep until you have confirmed charges are accurate and have proof of payment. Keep for 7 years if they are the only record of a tax-related transaction.
- Home Improvement Records - Keep for 6 years to lower any taxable capital gain on the house when sold.
- Insurance Documents - Keep as long as they are active, replacing older versions with newer ones as they arrive. Discard when expired.
- Investment Records - Keep for 3 years. Shred monthly statements after receiving an annual summary.
- Loan Payoffs - Keep for 7 years.
- Medical Bills - keep for 1 year (or until any disputes are resolved, if applicable). Keep medical bills for 7 years if deducting medical expenses on your income tax.
- Mortgage Payoffs - Keep at least 7 years, if not forever.
- Paycheck Stubs - Keep until the end of the year. Compare them to your W-2 and Social Security statement, and then shred them.
- Property Records - Keep property records, and records of home improvements or sale-related expenses incurred, for 6 years after selling the property. Profits from selling property are considered capital gains, and any home improvements or expenses incurred in the sale, including legal fees and real estate commissions, can lower the amount of capital gains tax you owe.
- Real Estate Records - Keep until you sell the property, plus 7 years.
- Rental Agreements - Discard after you have moved out and any security deposit has been returned.
- Receipts - Keep receipts for routine purchases (gas, groceries, etc.) until matching them against your bank or credit card statement. Keep receipts for expensive or warrantied items for as long as you own them. (You’ll need the receipt at least as long as the warranty is in effect, but you may also need it for insurance purposes, in case of loss.) Store the receipt with the warranty documentation or owner’s manual. For tax-deductible items, store the receipts for 7 years.
- Retirement Plan Statements - Keep quarterly financial statements until reconciling them with your annual summary. Keep annual statements until retirement.
- Securities - Keep records of securities sales or purchases for 7 years for tax purposes.
- Tax Returns and Documents - keep all tax returns and any supporting documents for 7 years, especially if filing a claim for a loss due to bad debt deduction or worthless security. Tax documents include W-2s, 1099 and other forms, depreciation schedules, canceled checks and receipts for alimony payments, charitable contributions, mortgage interest payments, and retirement plan contributions.
- Stock Certificates - Keep as long as they are active, and discard when expired.
- Utility Bills - Keep until you receive the next statement, and confirm it accurately reflects your payment. Keep for 7 years if claiming a home office deduction.
- Warranties - Keep warranty documentation, including associated receipts, for as long as the warranty is in effect.
- Wills - Keep forever.
How Long Should I Keep Tax Records?
The IRS can audit your tax returns anytime in the next 3 years. Failing to report 25% of your gross income extends this timeframe to 6 years. So, while three years of tax records is sufficient in most cases, generally, professionals recommend holding onto tax records for seven years, to be safe.
Remember to keep close tabs on each tax record for easy access. Some professionals point out that holding on to tax documents indefinitely is not bad practice, as it can come in handy down the line if your employer is investigated for tax fraud, for example.
How Long Do I Need to Keep Financial Records for HMRC?
Her Majesty’s Revenue and Customs (HMRC) is the tax authority in the United Kingdom, the British equivalent of the Internal Revenue Service (IRS) in the United States. The HMRC expects individual (non-business) taxpayers to keep tax records for 22 months. Self-employed or partnerships must retain tax records for 5 years, while other companies are expected to retain their tax records for at least 6 years. Buying or selling assets, or filing records late, will lengthen these time requirements.
How Long Do You Need to Keep Stock Records?
Keep year end summaries, IRS Form 1099s and purchase or sale transaction records from all investment accounts or stock records for as long as you hold them, plus 7 years.
Business Records Retention: Employment Tax Records
The IRS record retention laws require businesses to keep all payroll records, and certain personnel records, accounting records, and corporate records on hand for 4 years after filing income tax returns for the fourth quarter of the year.
How to Store and Organize Financial Records
Safe storage is essential for financial documents – and all important documents – to protect them fire, flooding, or theft. Past generations often used fireproof safes or safety deposit boxes for hard-to-replace permanent documents, such as social security cards, marriage or divorce decrees, birth and death certificates, adoption paperwork and wills. However these had the distinct disadvantage of poor accessibility. While the family filing cabinets of yesterday were accessible from home, they weren’t when traveling. They were also particularly vulnerable to loss in a disaster. Filing cabinets filled up quickly, making routine document purging an important part of managing finances.
Fortunately, with today’s technology, it’s easy to store financial, legal, medical and other important documents securely online, where they can easily be accessed from anywhere. With electronic records, it’s easy to find the necessary document without thumbing through reams of paperwork – even if discarding old documents isn’t at the top of your list of to-dos. Pillar also offers information and articles that help you navigate the financial world with topics that cover what happens when you file bankruptcy, or understanding a CPA vs financial advisor.
One caveat with electronic document storage: financial files can be sensitive in nature. Be sure that they are stored using top-of-the-line security and encryption technology, the standard used by trustworthy companies like Pillar. Start your free 14-day trial and find out how easy it is to store all your essential financial documents in one secure location for as long as you like.