Video: Hoard or shred? Organizing financial records

By Patricia Gras


Some of us have a hard time deciding which financial records to keep and which to throw away.  Having too many paper records may be unecessary. But  some documents are essential to save -- mainly for tax purposes.

"You need to keep all your supporting documents that you use preparing tax returns," says Laury Adams, an independent financial resource consultant. "The IRS could audit you for a period -- usually it's three years -- so you want to have those records for a period of four years. And then if you've underreported your income by 25 percent, they could audit you up to seven years."

 That means you should keep seven years' worth of the following items if you've used them to figure your taxes:

  • Receipts
  • Canceled checks for deductions claimed
  • 1099 forms
  • Proof of business income and expenses
  • Stock and securities statements
  • W2 forms

"The W2 statements you would keep forever to prove earnings for Social Security," says Adams.

You need to keep other forms even longer than seven years to protect your retirement funds, including

  • 1099R forms that show distributions from retirement accounts
  • Form 8606 for nondeductible contributions to IRAs
  • And 5498 forms until all the money is withdrawn from your IRA accounts.

"Any kind of document regarding IRAs or retirement accounts I think you should keep forever," says Adams.

What else should you keep? Asset protection documents such as insurance policies.

"These items are there to protect assets: your home, your car, your family, life insurance and so forth" says Rudy Cavazoz, Jr., regional director of education for Money Management International. "This information should be kept indefinitely."

You'll also want to keep your will and other estate planning documents indefinitely in a safe deposit box.  But credit card and bank statements are a different story.

"Most consumers should consider holding on to these for at least 30 to 45 days," says Cavazoz. "After that time, you can go ahead and shred them. Banking institutions at the end of the year will offer an annual summary statement. Save that for tax purposes."

"The documents you should be discarding are marketing materials that have your personal information on them, your utility bills," explains Cavazoz. "Home and auto insurance policies can be discarded after they've expired."

Many experts agree, organizing records and documents may seem like a nuisance, but you will know where they are when you need them, you'll have better control of your financial life and it will pay off in long term security.

See related: What records to keep and how long to keep them, 7 low-cost ways to get financially organized

Published: October 24, 2013

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Updated: 10-28-2016

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