Content of the material
- Where to store your documents?
- What happens if you dont hang on to them
- Paycheck Stubs
- Records of Loans that Have Been Paid Off
- Home Improvement Records
- Tax-related documents you need to keep
- Retirement accounts
- Health insurance
- How to properly dispose of your 401(k) statements
- Is It Necessary to Keep Your Financial Statements?
- Online vs. Hard Copy Statements
- How Long to Keep Financial Documents: Bills
- Keeping Records
- How Long to Keep Financial Documents: Brokerage and Retirement Accounts
- How Long Should You Keep Your Statements?
Where to store your documents?
Safe deposit box or waterproof and fire proof home safe. Make sure someone else you trust knows how to access them. If you have a safe deposit box, record its number, bank name and address, and give that information and an extra key to your designated point person. In addition to storing your important documents here, you should also include your passports and a written or video inventory of the physical contents on your home.
Have a backup. Your accountant, attorney, broker and financial advisor will generally store important document paperwork on file for you electronically. Confirm and ask for how long they do so.
Electronic storage. In today’s digital world, it’s smart to have an external hard drive or a USB flash drive as an extra level of protection. There are also a growing number of encrypted, web-based and cloud storage services to back up and store your important papers. Each of these has a few drawbacks, of course, so it will depend on your level of comfort.
One caveat. If you go electronic, make sure you keep your technology up-to-date. Moreover, if you get married, have a baby, buy a house, or get divorced or widowed, review and update your important document files and name new beneficiaries to accounts if necessary.
Make it a priority to locate your important documents, store them safely, shred what you don’t need and tell someone you trust how to access them in an emergency. When the need to access this information arises, you’ll be glad you took the time to safeguard yourself.
What happens if you dont hang on to them
What’s the worst thing that can happen if you lose your records? You might owe more money.
“If you are ever asked for them and you don’t have them, you may have problems substantiating what’s on your tax return,” Greene-Lewis says. “Certain deductions and credits could be denied.”
If you don’t get direct deposit, you can shred physical paycheck stubs at the end of the year—but only after verifying that the stubs match up with the annual W-2 form your employer sends out, Bankrate.com advises. If the two don’t match, use the stubs to corroborate your request for an amended tax form.
Records of Loans that Have Been Paid Off
How long to keep: Seven years. You’ve paid it off, and you don’t want to have to pay it again. Just in case a bank or processing error shows up down the line that you might not be in the clear, make sure to hang onto any records of loans — this includes student loans, car loans, etc. — for seven years.
Home Improvement Records
How long to keep: A minimum of three years, but as long as seven years. Hold these for at least three years after the due date of the tax return that includes the income or loss on the home when it’s sold. If you plan to sell the house, and you have made improvements to it, keep receipts for those improvements for seven years — you may need them to lower the taxable gain on the house when you sell it.
Tax-related documents you need to keep
Generally, the IRS recommends keeping all documents that prove how much income you earned and anything that supports credits or deductions you claim. Don’t worry about keeping every single document, though. For example, your W-2 form will summarize how much you’ve earned, so you do not need to file away every single pay stub.
Here is a rundown of some of the basic tax documents you should keep on file for three years.
Your taxes start with how much you made, so keep a record of all the dollars you were paid in a given year.
- W-2 forms
- 1099 forms
- K-1 forms
If you’re a self-employed or freelance worker, it’s especially crucial to keep evidence of all the money you had to spend to keep your business going.
- Sales slips
- Canceled checks or other proof of payment
- Annual bank statements (check with your bank to see if these are also stored in your online banking account)
Buying and selling a home comes with big tax implications.
- Closing statements
- Purchases and sales invoices
- Proof of payment
- Insurance records
- Mortgage interest deduction forms
If you’re earning extra cash from your investment portfolio, those documents need to be preserved, too.
- Annual brokerage statements
- 1099 forms
- 2439 forms
As you plan for retirement, plan to keep the IRS informed of how your funds are doing.
- Form 5498, Roth and traditional IRA contributions
- Form 8606, nondeductible IRA contributions
- Annual statements
- 401(k) and other company-sponsored plan statements
- Form 1099-R distribution records
When you file your taxes, you don’t have to submit proof of your insurance. However, you could still need to show the IRS that you were covered.
- Form 1095-A (Health Insurance Marketplace Statement)
- Form 1095-B (Health Coverage)
- Form 1095-C (Employer-Provided Health Insurance Offer and Coverage)
- Insurance cards
- Statements from your insurance provider
- Payroll statement that shows money was deducted for your health insurance
- Time limit exceptions
How to properly dispose of your 401(k) statements
Keeping your financial information secure is essential. Not only will it prevent your identity from potentially being stolen, but it will also prevent thieves from gaining access to your 401(k) and its funds.
If you receive physical copies of your 401(k) statements and don’t wish to keep them, shredding them is the best method for disposing of them. Investing in a shredding machine for your home is an excellent way of getting rid of sensitive documents like your 401(k) statements. However, remember to scan digital copies of your 401(k) statements before destroying them.
As far as digital copies, it’s important to remember to delete any copies of your 401(k) statements before getting rid of any computers or external hard drives.
Is It Necessary to Keep Your Financial Statements?
It’s possible to access past statements without keeping copies yourself, but you may choose to keep your own statements on file anyway. Your financial institution stores information in their system for multiple years, and may be able to provide you with copies of older statements on request. You can also request past copies of the statements you normally receive by mail, sometimes for a fee, by contacting your bank or card company.
The length of time your financial institution will store these records—and make them available to you—varies, so it’s a good idea to do a little research on your bank’s policy. Some card companies only provide online statements for the previous 12 months, for example; you may have to do extra legwork or pay for missing statements and wait a few days or weeks to get anything beyond that.
Some banks, including Wells Fargo, retain account statements for up to seven years on checking, deposit, home mortgage, trust and managed investment accounts. At other financial institutions, five years is the norm.
If you’ve used your financial statements to back up information on your tax returns, you may want to keep your own paper or digital copies, rather than relying on the bank to do it. That way, you can ensure that you have these documents on hand for a full seven years. And at any time, you’ll be able to access and refer to this information without having to track it down online.
When you no longer need your documents, be sure to shred the paper files and completely delete the electronic copies (including any backups). Free software for Windows and Mac computers can help make sure these files can’t later be recovered by someone up to no good.
Online vs. Hard Copy Statements
Many banks maintain monthly customer statements online for at least five years and they are easily accessible through their online banking apps and sites. These statements usually come in printable formats. Summaries of transaction information are frequently available for download.
You may be able to get hard copy statements from your bank going back a number of years. Some banks charge a search and printing fees for this service, as it cannot be done at the branch level. Older statements are handled in a back office.
For safety, it's best to keep any hard copy bank statements in a fireproof safe in a secure location. Electronic statements should be maintained in a password-protected file.
Use password protection for electronic files. Hard copy statements should be kept in a secure, fireproof location that can be easily accessed.
How Long to Keep Financial Documents: Bills
Review your bills annually. In most cases, after the canceled check from a bill is returned, you can shred the bill.
But you should keep invoices for big purchases; e.g., jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. in an insurance file – paper or electronic – for proof of value in the event of loss or damage.
In the case of credit card receipts and statements, keep your original receipts until you get your monthly statement. You can shred the receipts if the two match up. Keep the statements for seven years if they document tax-related expenses.
How Long to Keep Financial Documents: Pay Stubs
When you receive your W-2 from your employer, you should match it to the information on your pay stubs. If it does, you can shred the stubs. If it does not, you should request a corrected form, known as a W-2c.
As a general rule, you should keep copies of your W-2s for seven years. But you should also match them to your Social Security earnings history through your my Social Security account. If you find a mistake, your W-2 can help you correct it.
Since many of the financial statements and associated paperwork stored in file folders dedicated to specific years can be disposed of after the files are no longer needed for tax records, keep your retirement statements in a separate location to ensure they are not inadvertently discarded. Label a file folder for each retirement account and add each statement to the folder as it arrives. When possible, consider placing the folder in a safety deposit box or fireproof box instead of a traditional filing cabinet.
How Long to Keep Financial Documents: Brokerage and Retirement Accounts
If you have a taxable brokerage account, you should keep track of what you paid for a stock, bond, or mutual fund (your tax basis) to calculate any gains and losses. If you reinvest dividends or hold an interest in a master limited partnership, your basis will not simply equal what you initially paid for the shares. This means you should retain records supporting reinvested dividends as well as copies of any K-1s received due to ownership of partnership interests.
As a general rule, your brokerage firm will keep track of your basis for you. New record-keeping rules went into effect for most transactions beginning in 2011. These rules took effect for fund companies in 2012. (See here for more information about these rules.) You are on your own for purchases before those rules took effect. If you transfer your account to another firm, the old firm will also transmit your cost basis information to the new firm electronically.
At the same time, it can help to keep these records in your files as a backup. For example, you could archive all your electronic trading notifications in your email, or scan paper statements or a year-end summary of all transactions and store it on the cloud or an external hard drive to be safe. Your financial advisor should also maintain records of transactions that take place while you are working with him or her.
Remember electronic transaction records only go back so far. As a result, you may need to rely on your own records for supporting your cost basis in investments held for a considerable period.
In summary, you should keep records supporting your tax basis in an asset held in a taxable account for seven years after you sell the asset.
If you make nondeductible contributions to your individual retirement accounts, your brokerage firm may not be able to help you substantiate such contributions. Brokerage firms do not typically have access to the relevant IRS document – Form 8606 – which you use to report such information. This means you should maintain those records until after you withdraw all nondeductible contributions to the account.
You should also hold onto any records of conversions from regular Individual Retirement Accounts (IRAs) to Roth IRAs to substantiate your eligibility to withdraw the money free of taxes years later. If you work with an accountant, they may have copies of such documents as well.
You should keep quarterly statements from your retirement/savings plans until you receive the annual summary. If everything matches up, you can get rid of the quarterly statements. Keep the annual summaries until you retire or close the account.
How Long Should You Keep Your Statements?
If you haven't opted out of monthly bank statements by mail, keep them for a minimum of one year. If your account is online-only, review the deposits and withdrawals monthly to make sure they're correct.
Alternatively, if you're great at data entry, you can record your income and expenses in a bookkeeping program or a spreadsheet.
After one year, it's safe to shred and discard the paper with one big exception: Anything that documents a tax deduction should be kept for at least three years. The IRS says it rarely goes back farther than that in audits, although it reserves the option to do so.
If your account is online, the records will be either archived online or available by special order from the bank or financial institution. American Express, for example, keeps three years worth of account transactions online and searchable. Chase Bank users can access seven years of account activity.
Bills, bills, bills. If you’re like most people, they make up the bulk of what’s in your files. McBride says it’s okay to shred most bills as soon as your payment clears.
If you’ve gone in for any big-ticket items, however—furniture, jewelry, computers or other expensive electronics, etc.—keep the bill as long as you have the item. You never know when you’ll need to substantiate an insurance claim in the event of loss or damage.