April 2020 - How long should you keep financial related documents?

Many people struggle over which financial statements and records to keep—and for how long—and which ones to throw out. And what’s the best way to organize your files? Following are some guidelines:

Think about why?

Why are you holding on to various records? Some documents clearly have short-term value, while others have a long-term purpose. One way to put your financial files in order is to separate your short-term paperwork from your long-term items.

Current Files

  • Unpaid bills, paid bills, canceled checks, bank statements, credit card statements.
  • Receipts for major purchases, this year’s income-tax receipts, including tax deductions and charitable donations.
  • Insurance policies: life, health, disability, home and auto.

Long-term Files

  • Seven years of income-tax records, including backup information, such as W-2 forms and anything relating to tax deductions.
  • Seven years of bank statements, canceled checks and check registers.

Time to Throw Out

  • Credit card receipts: Toss them once you match them with your monthly statement unless you need to claim them as a business expense, or unless you need them for proof of purchase—such as for a major purchase.
  • Credit card statements: Throw them out once your payment is posted unless you need them for  tax purposes.
  • Pay stubs: Keep the latest couple in case you apply for a mortgage; toss older ones.
  • ATM receipts: Throw them out after reconciling them with your monthly bank statement.
  • Utility receipts: Throw them out after your bill payment shows up on the next month’s statement, unless you need them to deduct a home-office expense.
  • Investment statements: Throw out monthly or quarterly statements after you compare them with a year-end report.

Hold Indefinitely

  • Investments: Hold on to annual investment statements and records that show what you originally paid for stocks and mutual funds until you sell them and report tax gains and losses.
  • Home ownership: Keep home improvement receipts and mortgage bills as long as you own your home
  • Receipts for major purchases.
  • Estate planning: A copy of your will, inheritance papers, healthcare proxy forms, gift tax returns,  powers of attorney.
  • Warranties and operating instructions for appliances.
  • IRA and 401(k) retirement statements.
  • Insurance policies.
  • Personal papers: Birth certificates, Social Security cards, legal papers about formerly owned properties.

Be Organized

  • Keep all your financial files in one place.
  • Keep the most recent files accessible.
  • Back up your computer files; keep the backup data in a safe place; provide computer passwords with your other vital information.
  • Keep your system easy.
  • Each year, go through your short-term files and either throw out (recycle/shred) items or place them in your long-term file.

This information was created by LPL Financial. This material is for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.