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Organization 101: How Long to Keep Financial Documents

For many of us, the new year comes with resolutions, and getting organized tends to be a popular one. Perhaps not so coincidently, January is also Get Organized Month. Whether your document clutter is in digital or paper form, organizing it so you can find what you need more easily saves time and frustration. But how long should you hold on to this information?

Here are some general guidelines for determining what to keep and what to discard.

Tax Records

Generally, the IRS has three years to request an audit, though that is not set in stone. (See the IRS guidelines here. State tax record guidelines vary by state.) For that reason, you may want to keep at least an electronic file of your final returns indefinitely. When it comes to saving and storing the documents supporting your returns, at least seven years is considered a good practice for straightforward returns. This would include W-2 and 1099 forms, as well as charitable donation receipts.

Bank and Credit Card Documents

In general, most ATM and credit card receipts can be thrown away as soon as they are reconciled to your monthly statement. The exceptions would be if they are needed for business or medical reimbursement reasons or to support tax deductions. Assuming you are like most people and can access old account statements online if needed, or can request a hard copy from your bank or credit card company, keeping monthly statements for longer than a year is typically unnecessary.

Brokerage Statements and Confirmations

Quarterly brokerage statements should be kept until they can be reconciled with an annual summary. Confirmations of purchases of securities, however, need to be held until the security is sold. At that time, both the purchase and sales confirmations will be used to support either a capital gain or loss on your tax return. Once an investment position is closed out and reported to the IRS, it's considered a best practice to keep the documentation for seven years.

Bills

In general, you can get rid of a bill once your payment has cleared. However, if you can use it to support a deduction, such as utility bills for a home office, you'll want to hold on to it. Invoices related to larger purchases, such as a car or appliance, should be retained for as long as you own the item in case you need to file an insurance claim or your proof of purchase is required for a repair covered under a warranty.

Mortgages and Loans

Any mortgage or loan (such as student, auto, or personal) documentation should be kept at least until the loan is paid off and you've verified it has been updated on your credit report. After that, you may want to keep the actual document releasing you from the obligation permanently in case proof is needed that it was repaid in full.

The Essentials

Some documents should be safely filed away indefinitely. These include birth certificates, Social Security cards, marriage licenses, life insurance policies, legal filings, and current wills. Additionally, you may want to share copies of these important documents with the person who has your power of attorney or with your executor.

Protecting Your Information

Whether the documents you’re holding on to are digital or physical, ensure their safety. For physical documents, this means having a designated place, such as a fireproof lockbox or safe deposit box, for storage. Digital files should be backed up regularly, and it may be advisable to copy important, long-term files onto an external drive and store it with physical files.

Keeping your financial and personal documents organized and periodically purging and shredding or permanently erasing those you no longer need not only helps reduce the clutter—paper and electronic—it also can remind you how far you've come financially and inspire you in setting future goals.