Despite the growing number of financial records that can be accessed online, there are still reasons to keep physical records, at least for a while. For the documents you keep for over a year, it’s a smart idea to invest in a fire safe and store them there.
Read on to find out exactly which records, statement, and bills to keep, why to keep them, and for how long.
Online vs hardcopy
In general, holding on to hard copies of financial documents is less of a necessity if the same information is accessible online. However, some online records may only be available for a limited period of time, and you’ll probably need Internet access to reach them—not to mention remembering a username and password.
The other option is to download any bills and statements and save them to a computer, USB drive, or cloud storage. The IRS considers electronic documents as valid as the paper ones. If this is the route you want to go, be sure to store backups and encrypt the files.
Reasons to keep
Each type of financial record has its own reason for why and how long you should hold on to it. Included in those reasons is the ability to review activity for fraud, identity theft, mistakes, and proof of payment or deposit.
Brokerage statements and investment records — Monthly statements should be kept until you have the annual statement, which you then keep as long as you own the security, plus seven years as part of your tax records.
Credit card statements — With printed statements, you only need to hang on to them until you’ve checked them for accuracy, unless they’re your only record of a tax-related transaction, in which case keep it for seven years. If you need to refer to an older statement, you’ll be able to access it online, most likely.
Credit union statements — If you still receive printed statements, keep monthly statements for a year and annual statements related to taxes for seven years. Things like ATM receipts and deposit and withdrawal slips can be shredded once the transactions are verified with your next statement.
Insurance policies — This is easy: shred your old ones when you receive new policies.
Mortgage statements — Shred these when you sell the house.
Pay stubs — Keep these for one year so you can match them to your W-2 at the end of the tax year.
Property records — Keep home-purchase documents and records of substantial improvements for at least six years after you sell the home. It’s also wise to keep records of the expenses incurred in buying or selling your home (e.g. legal fees, commissions paid to real estate agents) because they are used to calculate your capital gain and taxes on the sale. If you’re a renter, shred rental agreements after you’ve moved out and the landlord has returned your security deposit.
Receipts — Unless you might need to return an item paid for with cash, you can throw those receipts away as soon as you’d like. If you paid with a debit or credit card, keep receipts until you can reconcile them to your bank or credit card statement. Major purchases warrant holding on to receipts indefinitely (to get the warranty or prove their value in the event of loss or damage).
Retirement plan statements — Keep quarterly statements to reconcile with your annual statement, then discard. Keep the annual summaries until you retire to prove you already paid the tax on it.
Tax returns and tax receipts — These should be kept for seven years after the return is filed, including evidence of claimed deductions (canceled checks and receipts for things like alimony payments, charitable contributions, mortgage interest payments, and retirement plan contributions). The reason for the seven-year timeframe is because the IRS has three years to audit your return if it suspects good-faith errors and six years if it believes you underreported your income by 25 percent or more. Hold on to your W-2s until you earn Social Security because they offer the best estimate of your earnings.
Utility bills — Hold on to these for a year simply so you can use them to more accurately build your budget for the next year. If you ever need to dispute a payment, you’ll use your banking statements.
All of these documents should be shredded after you no longer need them. Many credit unions offer shredding services to their members without a charge. Your local library may also offer this service for free.