How Long Should You Keep Records?

shredder.jpgSince the taxes are done and the IRS has already cashed my check (funny how quick they are at that!), it’s time to throw away some of the paperwork that I’ve accumulated through the year. I usually keep all my pay stubs, bills, and other papers in their own folders in a creaky filing cabinet. By this time of year, I can barely open the drawer anymore. But how long should you really keep your papers?

I got this list from a Fidelity newsletter I received a few years ago. Not sure how accurate it all is, but it seems like a good general guideline:

Keep Indefinitely
Income tax returns
Home purchase records
Home improvement receipts
Any active insurance policies
401k/Pension/IRA records

Keep at least 3 years
Anything that you need to back up your income tax return, like W-2s, 1099s, receipts, or investment statements.

I believe this is because the statute of limitations for IRS audits is three years from each April 15th or when you file your return, whichever is later. Note that if you underreport your income by 25% or more, then the statute of limitations is extended to 6 years. Finally, if there is fraud involved, then there is no time limit.

Throw away at year-end
Monthly bank statement
Monthly or quarterly investment statements
Pay stubs

Throw away after a month
ATM or credit card receipts
Cancelled checks
Utility bills
Credit card statements

A big caveat to all this is to keep anything that you might need for insurance or warranty purposes, in addition to the tax-related items already mentioned earlier. Saving receipts saved me from replacing a DVD player before, back when they still cost over $100. Also, save anything that you may need to prove your cost-basis for an investment when you eventually sell. Of course, be sure to shred everything you decide to dump.

I’ve been contemplating scanning all my stuff in as well, but I don’t think I’m quite that organized just yet.

Comments

  1. I keep wondering if Quicken records are considered an acceptable substitute for paper, in the case of things like those receipts you’re supposed to save 3 years?

  2. Throw anyway after a month? All of these records I used to help me piece together my tax return.

    For instance I needed my credit card receipts, cc statements, and utility bills to help me piece together expenses for my rental property. This probably makes apparent my lack of organization too….

    After I finished my return I guess I could throw away anything I didn’t use on my tax return, but it seems like you would at least want to keep this stuff at least until to you filed your tax return just to make sure you have records of everything you need.

  3. Problem is, if you are like me, and only clean up every few years or so, you end up with a two-foot stack of papers to shred. This takes *forever* to shred on a puny store bought shredder. I’ve been looking for a place where I can shred in bulk, and do it myself, but haven’t found such a place, yet.

  4. I just re-organized my files and did very similar to your suggestion.

    Financial statements (Pay stub / Bank / credit card / etc) — Keep 5 years.
    Utility statements — throw away after I pay.
    Taxes — keep forever.

  5. One trick I’ve learned is to get all of my financial statements electronically, to print them out using a free Adobe Acrobat file writer like CutePDF (www.cutepdf.com) and store them in PDF file format, and to store the files on Mini CD-R’s. Whenever I need a particular document, I can simply print it out on my laser printer.

    Storing my files this way saves me a lot of desk room, filing time, and needless stress. Of course, I do have some things that I have to get in print because they only come in that form (e.g., W-2′s, refund check stubs, IRS correspondence). However, once the period has passed that I no longer need to keep a print copy, I’ll electronically scan it, print it out in PDF form, and add it to my Mini CD-R for that tax year.

    A Mini CD-R, half the radius of a regular CD, is by far much more portable than a huge box of dust-collecting papers to lug around.

  6. Before I bought a shredder, I once went outside and did a bonfire in my bbq. I’m sure that was NOT good for the environment.

  7. A comment above about where to shred large volumes of paper: I know that several banks in my area always sponsor a “shred day” where anyone came come to the bank and shred their piles of paper. They usually do it this week. So you might want to ask around at different banks in your area to see if they’re doing anything similar.

    Dave

  8. Does anyone have any insight into the legality of scanned documents? Or a good website? I need to look more into this, to see what needs to be kept in hard copy format.

    I have to disagree with only keeping bank statements for a year, unless you have them in electronic format. I’ve heard of a lot of audits involving reconciling what you report as income and what actually gets deposited. It’s a really good idea to keep a copy of everything that gets deposited, too, although it’s not something I’ve implemented yet.

    One of my 2006 goals is to go paperless on all the filing.

  9. Scanned copies are as good as photocopies because they’re essentially the same thing. Keep the obvious originals hanging around (e.g., Birth certificate, social security card, credit cards, driver’s license, deed to the house, stock certificates, etc.) but make scanned backups of those too in case of a house fire or natural disaster.

    I store my Mini CD-R duplicates of all my most important documents in the secured safe deposit box at my local bank. I store my originals in a fire safe in my home. If there is ever a fire or natural disaster, I have two areas where I can find my valuable documents.

    The files on my Mini CD-R’s are encrypted a 1028-bit algorithm for ultimate privacy and can be accessed by inputing a rather lengthy password that is kept (1) in my safe deposit box in print form and (2) in a tiny 1GB Intelligent Stick Pro USB flash drive (www.pqimemory.com).

    You might ask, why all the extra security? Well, if by a small chance someone breaks into my deposit box (e.g., steals my key and visits the bank), they’ll have access copies of all of my private financial data. Better safe then sorry.

  10. The problem I’ve found with the CD-R’s is that some of the old ones (from 1999 or earlier) are now unreadable in my computers (I tried several different ones with different drives). These were TDK CD-R’s I bought from Costco at the time, I just stored them on the shelf.
    Don’t know if other people have experienced the same problems? Luckily they didn’t have any “essential” information on them, just some games and old emails.

  11. Instead of scanning each individual paper, would it also be acceptable to just lay them on the floor and take a picture of all the documents? (much quicker)

  12. You have to buy high-quality CD-R’s and store them in a shady area.

    Left in a non-shaded area for extended periods of time, your CD-R’s can be damaged. They may not appear to be damaged from a first glance, but they can be very easily.

    Also, cheap CD-R’s don’t last long. Get the kind with a thin layer of gold alloy in the foil and with a scratch-resistanct jewel surface. The kind that are labeled as being made for “music” or “long-term storage” cost a bit more, but they’ll last you through the years.

  13. Anonymous says:

    What program did you use for 1028-bit encryption?

  14. I use a home-made adaptation of PGP to encode my files. Since the software is reverse engineered and modified, I legally cannot distribute it.

  15. Anonymous says:

    Wait, you store the CD-Rs with your files, and the password written out on paper in the same safe deposit box? Custom algorithm or not, that’s something that anyone who knew anything about security would never do. Do you have your login password taped by your computer monitor too?

  16. Actually, I read somewhere that according to IRS, one should keep the tax return forms for 7 years.

  17. “Wait, you store the CD-Rs with your files, and the password written out on paper in the same safe deposit box?”

    No! No! No! The CD-Rs are kept in the safe deposit box AT THE BANK. The password in written form is kept in the deposit box (fire safe) AT HOME. I’m not that silly to leave both the files and the password in the same place.

  18. You guys should keep your records on your hard disk. Then buy yourself 2 external 250GB disk drives ($150 each from CompUSA), connect them to a USB port.

    CD-Rs are a pain in the butt. You can back up everything to a drive – pictures, important docs, statements and files.

    Then make a copy of all your returns and receipts onto these drives. If you use a PC, use either Windows Desktop Search (recommended) or Google Desktop to index your docs that way you can easily search for them. Also Adobe Acrobat 8.0 is much nicer now. It allows easy fast scanning and handles duplexing quiet well.

    Make a backup of your docs onto the second disk and store it in a saftey despit box, swap every 6 months or so.

    Good luck and happy scanning.

  19. Clueless recordkeeper says:

    This is helpful. Thanks.

  20. sample pay stub says:

    If the statements and the checks include payments for a mortgage, then keep them at least 7 years. The statute of limitations for collecting a debt is 7 years. If the statements show payment for any other type of contract, then keep the checks and the statements until the contract is completed or 7 years, whichever is less.

    If it is for a tax return, then keep the checks and the statements for 3 years from the time you filed the tax return or the time you amended it. The IRS statute of limitations is 3 years.

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