This time of year as many people go through their clutter of receipts and financial statements from the previous year, I always get asked, “how long should I keep my financial statements” or “do I need to keep this for any reason”? I’ve decided to write a post on how long to keep financial statements: what you need to keep, for how long, and some of the reasons why you need to do so. As an added bonus, I created a financial statements checklist in PDF which you can download for free. The benefit of this is that you can keep the sheet in a folder with all of your other financial records and always have access to it.
How Long To Keep Financial Statements
General Financial Statements
Each month, you should be reconciling your checkbook to the statement that the bank sends you, or you get online. After you verify everything is correct, you should keep the monthly statements for one year. The exception to this is if there was a purchase made that relates to taxes, home improvements, a business expense, etc. In these cases, you will want to hold on to the statement permanently, or until you sell the house/business.
(Note: Since many have online access to your statements, you may ask why the need to keep them. After all, the bank can get them for you. While this is true, most banks will only do this for you back to a certain time, say two years. Anything older is considered “research” and they charge you per the hour for this. The average charge: $25/hour. And while it should only take a few minutes to pull up your account history, who is to say it won’t take them a few hours because of the “complexity” of your account history? Save the statement, avoid the fee.)
Credit Card Statements
You should keep the receipt for anything you purchase with your credit card until the statement arrives. Once you verify they match, you can toss the receipts. Unless there is a tax related purchase, you should keep the statement for seven years. Otherwise, there is no need to keep the statement any longer than 60 days.
As with banks, you could get statements online too. Though again, most only go back a certain number of years. I am not aware of any credit card company charging the client to get old statements, but you never know.
Brokerage Statements (including Retirement Accounts)
You should keep the monthly brokerage financial statements (or quarterly brokerage financial statements if you get them four times a year) until you get your annual statement. Once you annual brokerage statement is received and matches the monthly/quarterly statements, you can shred the monthly/quarterly statements. Keep the annual statement until you sell the securities listed in it.
Again, I’m sounding like a broken record here, but you can get access to some statements online, but only up to a certain point. I remember having to call a mutual fund company for statements so I could confirm my cost basis. It took around a week to get the statements I needed in the mail.
Furthermore, I know that brokers are now required to report cost basis information, but I still like to have a copy for myself. Call me crazy, but that’s just me. I get rid of them after I have sold out of the investment in question.
Keep your pay stubs until you receive your W-2. Verify it matches, then shred the stubs. Hold on to the W-2 for at least seven years.
Keep your bills – electric, water, cable and internet, etc. – for one year. After that, you can shred them. In the event the bill is tax related you will want to keep that permanently.
You can shred receipts once you verify your bank or credit card statement is correct or the warranty/return period has passed. For receipts that relate to home or business expenses, you will want to hold onto those until you sell the house/business.
Any records relating to your home/condo should be kept until you sell the house. This also includes any bills relating to improvements you made. This is because the money you spend improving your house will adjust the cost basis for you, which affects your capital gains.
More Involved Financial Statements
Keep all returns, deductible receipts, and any other tax document for seven years. You may even want to keep them permanently. The IRS has seven years to audit you if they feel that you made an error on your return. Additionally, the IRS has six years to challenge your return if they feel you under reported gross income by 25% or more, and there is no time limit on how far you can get audited if the IRS feels that you filed a fraudulent return.
Lastly, you have three years to re-file a return if you made an error and are claiming a refund.
In the case of house or car insurance, you only need to keep the financial statements until you get your new policy, then you can toss the old papers. In the case of life insurance however, you should keep that forever.
It used to be each year, you received a statement from Social Security updating you on your estimated benefit when you retired. Now all of this can be found online. For me – again, I might be crazy – I print out my statement and keep it until I print out the new statement the following year.
Other Documents To Consider
In addition to the above, there are some things that aren’t financial statements, but you might be wondering if you need to hold on to for the long term. Here are those items, in no particular order:
- Birth certificate, marriage license, divorce paperwork, education and military record: Forever
- Loan documents: Until you sell the item the loan was for
- Service contracts/warranties: Until the policy ends
Hopefully, this list helps you organize your financial records and gain a better understanding of what financial statements to keep and what to shred. Once you finish going through your files, be sure to keep the most important documents in a fire-proof safe and buy a shredder to safely destroy those statements you no longer need.
[Photo Credit: Adam Rifkin]