How Long to Keep Every Important Financial Document
I used to laugh when I received an official document that told me to “save a copy for your records.” My “records” were a pile in the living room that was eventually crammed into a filing cabinet with the owner’s manual for my TV and old birthday cards from my Nana. But an unexpected IRS audit taught me the error of my ways, and now I’m fairly meticulous about record keeping.
Properly storing, saving, and disposing of financial documents isn’t just a good way to cut down on clutter and save yourself from potentially nightmarish paper-chases when The Man calls. It also makes it harder for anyone to steal your identity.
(Because this post concerns financial information, enjoy the following caveat: This post is for general informational purposes only. Consult a financial professional before acting on anything herein.)
How to store your most vital documents
If you were living your ideal life, you’d scan your most important paperwork, encrypt the digital records, then store them on a password-protected computer. The hard copies would be placed in a fireproof safe, a bank’s safe deposit box, or within a locked filing cabinet.
This applies to “can’t lose ever” documents like your:
- Social Security card
- Birth certificate
- Marriage certificate
- Divorce decree
- Insurance policies
- Property deeds
- Vehicle titles
- Will and related documents
You should also scan and encrypt your passport, driver’s license, and insurance cards. But you’ll probably need them, so the safe deposit box might not be their best home.
How long to keep tax documents
It’s not really possible to give a comprehensive “throw-away-by” date for tax records—taxes are complicated. But in general, you’re required to keep federal tax records for three years from the date you file or two years from the date you paid the tax, whichever is later. This is the IRS’s “period of limitations,” the time in which you can amend your tax return, or the IRS can assess additional tax.
There are exceptions, though. If you underpaid your taxes by over 25%, the IRS requires you to hold onto the records for six years. If you filed a claim for a loss from worthless securities or bad debt, hold onto the papers for seven years. The IRS says you should keep tax records forever if you file a fraudulent return, for what that’s worth.
You can read the IRS’s website for specifics. This isn’t the kind of thing to muck around with, so consult with an accountant or other financial professional if you have literally any questions or concerns.
How long you’re required to keep state or local tax paperwork varies by state and locality.
Keep these types of documents forever
Apart from tax records, broadly, the more important and irreplaceable the record, the longer you need to store it. Some things are so vital, you should never get rid of them—let your heirs sort them out. This applies to records like:
- Audit reports
- Stocks and bonds records
- Canceled checks for important purchases
- Contracts and mortgages that are still in effect
- Patents, and property records
- Union agreements
- Love letters (this is my personal opinion only)
Check out the Better Business Bureau’s website for a comprehensive list of “keep in perpetuity” paperwork.
Keep these types of documents for seven years
The next tier on the “keep it or toss it” list are documents you should save for seven years. This includes things like:
- Accident reports
- Expired contracts
- Payroll records
- Personnel files (if you’ve been terminated)
You can check the BBB’s site for the comprehensive list.
Keep these documents for three years
These kinds of records are less vital, and you only need to keep them for three years:
- Bank statements
- Employment applications
- Expired insurance policies
Keep these documents for two years
Now we’re getting to the more ephemeral documents that you might need, so you may as well keep them for a couple years. This includes documents like:
- Routine correspondence
- Duplicate deposit slips
How to properly dispose of financial and personal documents
If you’ve held onto those payroll records for exactly seven years, and now you want to get them out of your life, you shouldn’t just throw them in a trashcan. That’s how old-school nere-do-wells get your personal information, impersonate you, and ruin your life. So you have to shred them.
Home paper-shredders are relatively inexpensive. The better ones can handle credit cards, and they cross-cut, which makes piecing together shredded documents very difficult. There are also companies that specialize in shredding documents, including shredders that will come to your house and shred. If there’s a UPS store near you, chances are good that they will shred for you too. Then there’s municipal shredding. Some cities hold shred days where you can bring in your paperwork or maintain permanent shredding centers. As a last resort, call up Marissa Paternoster, guitarist of the Screaming Females, who shreds hardcore.