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Many people struggle with the mounting level of paper they receive in the mail. What is really important to keep and what can be thrown away?  Here are suggestions on how to organize your financial records, as well as some general guidelines for how long you should keep them.

Record keeping becomes easier if you think in terms of separating papers by your need to use them, keeping short-term items together, long-term items together and permanent -items together.  You’ll want to start with 3 file boxes, labeling them “Immediate”, “Long Term”, and “Permanent”.

  • The “Immediate” file box will contain items that you are currently working with such as bills and bank statements, as well as items that you will need for year-end taxes.  This box should be cleaned out frequently, placing documents in either the long term box, permanent box, or destroyed.
  • In the “Long Term” box think 3 – 7 years.  In general, this box will contain tax-related documents as well as supporting documents needed for major and minor purchases.  This box should be cleaned out annually, either placing items in the “permanent” box or destroying them.
  • Your “Permanent” box will contain items that should be held indefinitely. Consider keeping permanent records in a fire-proof locked box.  Files not needing ready access can be held in a bank safety deposit box (always keep a copy of your wills/trusts at home).

Remember to shred any sensitive documents and anything with your account numbers, social security numbers and/or date of birth.

Tax Records.  There are basically two types of tax information that you need to be concerned about: information you need in case of an audit and information to support your claims to income. Why the seven-year rule category?  The IRS can audit you for up to three years from the date you file your return and can pursue under reported income for up to six years.

Monthly Investment Statements.  The primary reason for keeping investment statements and confirmations of security purchases and sales (other than to view trades and changes in value) is to track the original cost basis, additional purchases, plus all reinvested distributions during the holding period. Check to see if this information is listed on your year-end statement or available from the brokerage firm. If so, we recommend keeping the year-end statement plus the most recent twelve months.  If not, you should keep all statements showing any activity during the year.

In rare cases, there could be a class action lawsuit relating to an investment holding applicable to the time you held it. Participating in the recovery process involves providing documentation of purchase dates, holding period and sale date.

Here are suggestions on what to keep in your boxes:

Immediate Needs Files

  • Paid bills
  • Bank statements
  • Canceled checks
  • Credit card statements
  • Medical plan statements for services and reimbursement statements
  • Updated employment records including benefit plans
  • Income tax receipts for deductions, income, etc.
  • Major purchase receipts
  • Current expense tracking reports (recommended)
  • Credit report and correspondence to correct errors

Long Term Files

Keep 3 Years

    • Household bills
    • Credit card statements
    • Receipts/warranties for minor purchases
    • Recent car service history

Keep 7 years – tax return related documents

    • Canceled checks
    • Check registers
    • Bank statements
    • Pay stubs or full year compensation summary
    • Tax returns and supporting documentation (keep older returns in permanent files)

Permanent Files

    • Receipts for home improvements
    • Warranties and operation instructions for appliances
    • Inheritance papers
    • Legal documents on formerly owned properties
    • Reports from trusts
    • Birth certificates
    • Social Security card, earnings history and benefits estimates
    • Marriage/divorce documents
    • Car titles
    • Real estate sales contracts
    • Burial vault, plot deeds
    • Wills/living wills/medical directive, durable powers of attorney
    • Investment purchase records and statements
    • Value and date of inherited or gifted property when received (not cash).
    • Amounts contributed to regular IRAs that were non-deductible
    • Documentation of Roth contributions and original application
    • Retirement plan statements
    • Life insurance policies (if term type – can throw away if surrendered)
    • Veteran benefits
    • Military records
    • Passport
    • Citizenship or naturalization papers
    • Family health and immunization records