As spring breathes new life into our surroundings, it’s time to dust off more than just the cobwebs in our homes. In this episode of The Agent of Wealth Podcast, host Marc Bautis answers one of the most commonly asked questions this time of year: What financial documents should I keep on file, and for how long?
In this episode, you will learn:
- The documents you must keep indefinitely, including legal, personal, and financial records.
- How long to keep tax-related documents and records.
- Practical storage solutions for both paper and electronic records.
- Best practices for disposing of old financial documents.
- Strategies for streamlining your document management process.
- And more!
Resources:
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Disclosure: The transcript below has been edited for clarity and content. It is not a direct transcription of the full episode, which can be listened to above.
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis.
Picture this: You’re cleaning out a file cabinet, your home office, or trying your best to organize the home, and you come across a slew of your financial documents. You flip through them – or spread them out to view them – and feel overwhelmed. What do you keep? What do you shred?
It can be hard to remember exactly which documents you should keep on file, and for how long. And we see a wide range of behavior – some people go overboard and keep their documents forever, while others on the opposite extreme don’t save anything at all.
With spring in full swing, many of us are tackling clutter and organizing our lives. So I thought now was the perfect time to cover this topic.
Today, we’ll break down the ins and outs of financial document management. From records relating to tax and legal matters, to healthcare issues, to assets and liabilities… I’m going to cover it all.
I recommend you grab a pen and paper – or better yet, your phone – to take notes. We also have a checklist that you can use as a resource, which you can download below.
How Long Should You Keep Financial Documents?
First, let’s talk about the documents that you should save based on the time they can be kept. I’ll break this up into three categories:
- Seven years or longer.
- One year.
- Less than a year.
Seven Years or Longer
When it comes to taxes, it’s best to keep any tax records for at least seven years.
While the IRS statute of limitations for auditing is three years, there are circumstances where they can go back as far as six or seven years. For example, if you underreported income by 25% or more. Some of these statutes of limitations vary state to state, so check with your tax professional if you have specific questions about limitations in your state.
Your best bet is to keep your tax returns as long as possible. That way, if you ever face a tax audit, you’ll have the information you need on hand. You should also consider saving documents that verify the information on your returns for at least seven years. This includes:
- W-2s
- 1099 forms
- Receipts
- Proof of payments
- Proof of gifts made to children, relatives, or others
If you have receipts related to assets, like receipts for home remodeling projects, keep those for as long as you are the owner.
One Year
Documents that fall into this category include non-tax-related documents such as:
- Bank statements
- Credit card statements
- Investment statements
- Pay stubs
- Receipts for large purchases
Keep these records on hand for a year, as you may need them to support your current-year tax preparation or as proof of income when making a large purchase (home/apartment, car, etc.).
The Federal Trade Commission (FTC) suggests holding on to your paid medical bills for a year before tossing them, unless you have an unresolved insurance dispute, in which case you would keep the medical bills until the dispute is resolved. Medical bills are confusing, and having records on hand to dispute payments or errors is smart.
Many bank and credit card issuers offer electronic statements now, so you may not need to keep paper copies on hand, which will cut down on excess clutter. If keeping other documents around longer term makes you anxious, you can opt to scan them to create electronic copies and then dispose of the original paper documents.
Less Than a Year
Some documents don’t need to take up valuable space in your home for very long. For example, you do not have to keep receipts unless they pertain to:
- Products under warranty
- Your tax returns
- Insurance claims
You can toss most of your monthly bills after they are paid. If you end up needing to go back to verify anything, see if you can access past bills through online account access. Many companies keep past bills and invoices available online for the past few months, or longer.
Banks typically don’t mail canceled checks back to you anymore, but if yours does, most canceled checks are okay to shred once you’ve verified your bank statement is correct. Some canceled checks should be saved, though, if they are related to tax returns, like any charitable giving.
What Financial Documents Should You Keep Forever?
Now that we’ve discussed which documents you should keep for specific time periods, let’s discuss the ones you should hold on to indefinitely. Important documents to save forever include:
- Birth certificates
- Social Security cards
- Marriage certificates
- Divorce decrees
- Adoption papers
- Death certificates
- Passports
- Wills and living wills
- Powers of attorney
- Legal filings
- Military records
- Retirement and pension plans
- Inheritance documents
- Business records (the company EIN and documents of formation and operation)
- Beneficiary forms
For anything you’ve bought or insured, you should save the related documents for at least as long as you own them or until the warranty ends. It won’t hurt to keep them around longer, though, just to be safe. This includes titles to automobiles, real estate deeds, insurance policies, warranty documentation, and more.
Health insurance policies, Medicare eligibility, and related documents are important to keep long term, too. As long as your health coverage is active, you should keep these records. If your coverage ends or you’ve moved to another insurance company, you can toss paperwork once you’re sure you won’t need it. The same is true if you receive disability or unemployment benefits – keep the documentation until you know you no longer need it.
Employment documents such as contracts and proof of professional certifications should be kept as well.
If you have financial records or documents you aren’t sure you’ll need, err on the side of caution. We recommend keeping any documents until you are positive you don’t need them.
Alright, now let’s talk about storing these documents…
Related: How to Create A Financially Organized Life
How to Store Financial Documents
You can cut down on clutter by creating a reliable system for storing your financial documents. But keeping your documents safe is equally important. When storing documents, you’ll want a storage solution that is:
- Easily accessible
- Protected from theft
- Protected from damage
- Well organized
Let’s discuss paper storage options, then electric versions.
Paper Storage
Many people choose to keep documents stored in a filing cabinet. You can use file folders to organize paperwork by subject, year, or another method of your choice. Bankers boxes are another paper storage option, but we do not recommend them as they’re more susceptible to water damage.
For your most important documents, a standard filing cabinet might not be enough. We recommend utilizing a safe – one that’s fireproof and waterproof – for maximum protection.
Safe deposit boxes used to be a popular method for storing valuables, including documents, but not all bank branches offer them today. However, if you prefer keeping documents offside, it can be an option.
If you’d like less paper, there are plenty of digital storage options…
Electronic Storage
Many financial institutions and businesses now let you opt for electronic billing and statements, either through email or online account access.
For other documents, you can use a scanner to scan them into your computer, or you can take photos using your cell phone.
Keeping all of your documents on your computer isn’t always efficient, and it can bog down your system. Other digital storage options include external hard drives, like HDDs and SDDs, which are company solutions for storing large amounts of electronic data. An even more company solution is storing on a flash drive, although these are easier to misplace or damage. So, if you go the digital route, it may be a good idea to create multiple backup copies.
Another option is to go with cloud-based storage for essential paperwork. The past several years have seen an explosion of cloud-based solutions, such as:
- Dropbox
- Google Drive
- Microsoft OneDrive
- iCloud
- Amazon Cloud Drive
- (and so on)
Using cloud-based storage now only saves on space, but also can be great for organizing and keeping your documents secure, since most services guarantee protection through encrypted networks.
Many cloud-based solutions allow access through multiple devices, making your documents accessible almost anywhere in the world.
If you do end up choosing a digital storage solution, make sure you don’t need a physical copy or original document in the future. The last thing you want to do is shred something to save space, only to need it years later.
Now that we’ve discussed what documents to keep on file, hold long to hold onto documents, and storage options, it’s likely you’ll have some documents that no longer serve you. Let’s discuss how to dispose of old financial documents…
How to Dispose of Old Financial Documents
Because all of your financial documents contain some level of personal information, you cannot simply throw these in with the garbage or recycling.
According to recent data, approximately 33% of Americans have been victims of identity theft. And what may be more surprising is that identity theft victims in the US are most commonly aged between 30-39 years old. Throwing away documents with your trash exposes your information to anyone willing to do a little dirty work to steal your identity. You might not realize how much information is present on your old bills, statements, and other financial documents, until it’s too late.
Here’s what could be present on the documents you want to throw away:
- Full, legal names
- Physical addresses
- Phone numbers
- Account numbers
- Routing numbers
- Driver’s license numbers
- Policy numbers
- Usernames
- Passwords
- Membership information
- Medical records
- Signatures
So, your best option is to shred any documents that contain sensitive information. Either invest in a shredder for your home, or utilize a professional shredding service. You will likely pay a fee for this service, but it’s a small price to keep your personal information safe.
Retail stores like Office Depot, Office Max, Staples, The UPS Store and FedEx offer shredding services.
Many cities/towns also hold free paper shredding days for residences.
Alright, that wraps up today’s episode of The Agent of Wealth Podcast. If you would like a condensed version of this episode in the form of a checklist that you can complete, click the link below.
If you have any questions regarding the statements and documents we have on file for clients, you can reach out to your advisor – myself or John. We’d be happy to discuss your specific situation, and what you should keep (and for how long).
Thank you for tuning into today’s episode. I’m Marc Bautis, and I’ll talk to you again next week. Take care and stay organized.
Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.