Published in: Banks | May 18, 2020

Financial Documents: What to Keep and What to Toss

By:  Dana George

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In the mood to organize? Make sure you don't throw away anything you might need.

If, like many of us, you have piles and files of financial documents stored around your home, you may be curious as to how long you're supposed to hold on to it all. Here's a rundown of what you need to keep and what you can shred.

A couple sitting on the floor of their living room organizing paperwork.

Image source: Getty Images

Documents to keep while active

Some financial documents should be held until they are canceled, sold, cashed-in, expire, or no longer serve a purpose. They include:

  • Insurance documents
  • Contracts 
  • Warranties 
  • Stock certificates
  • Rental agreements (you can throw them out after you've moved out and the landlord has returned your security deposit)

Documents to keep for 12 months

As long as you don't need any of the following for tax purposes, they can be shredded and recycled after one year:

Documents to keep for a minimum of three years

Generally, the statute of limitations for the IRS to audit a return is three years (although there are exceptions to the rule, as we discuss in more detail below). Keep all IRS-related documents for at least three years. Here are some of the items you can toss at that point:

  • W-2s
  • 1099s
  • Medical bills 
  • Records from selling stock
  • Annual investment statements 
  • Receipts for charitable contributions
  • Proof of alimony payments
  • Mortgage interest statements
  • Retirement plan contribution statements
  • Supporting documents used on your tax return, like receipts (including property tax), canceled checks, and interest statements

Documents to keep for a minimum of six years

The IRS can audit you for up to six years if you under-report your income by more than 25%, overstate your basis (lie about how much you initially paid for an investment), or fail to report foreign income, gifts, or assets. Note: If you file a fraudulent return, don't sign your return, or simply choose not to file at all, the IRS is not bound to a statute of limitations if they can prove you attempted to commit fraud.

These are the documents you'll use to calculate capital gains when you sell a home. Keep them, just in case you're audited within six years of claiming the expenses on your taxes:

  • Documents related to the purchase of a home and records of substantial improvements made, like a new addition or plumbing. 
  • Records of expenses incurred in buying (and later selling) your home, such as commissions paid to real estate agents and legal fees. 

Documents to keep forever

Although they're not necessarily financial documents, you should retain Social Security cards, ID cards, passports, shot records, birth and death certificates, marriage licenses, business licenses, and adoption papers indefinitely. Also, keep these financial documents:

  • Records of paid mortgages and deeds
  • Wills
  • Life insurance policies
  • Powers of attorney
  • Living wills
  • Pre- and post-nuptial agreements
  • Pension and retirement plans

And in case you ever need to file an insurance claim, keep the paperwork associated with your purchase of these items (or until you no longer own them):

  • Jewelry
  • Computers (and other electronics)
  • Expensive art

Make it a point to shred documents you no longer need in order to protect valuable information and reduce the risk of falling victim to credit card fraud. The best place to store remaining records is somewhere that's out of sight of casual visitors, preferably in a waterproof/fireproof box. Before storing those records away though, scan and store them online in order to ensure that you have backup copies. 

Unless you're a person who enjoys the process, there's nothing fun about gathering and organizing important papers. Still, doing so can save you time and stress when you need access to them. It can also help you get a better sense of your financial situation, including how much you have in your bank account

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