Ask the Adviser: How long should I keep my financial documents?

Q: I’m looking to clean out some of my files but don’t know where to start. How long should I keep my financial records and bills?

A: A lot of people want to reduce clutter without throwing away something they’ll need down the road. While it might be tempting to toss (or shred) documents based on the date alone, the guidance varies depending on the type of document. Here, we’ll look at best practices for keeping a variety of common documents and the factors at play.

Tax Returns and Supporting Documents

It’s recom­mended to keep your federal tax returns and supporting documen­tation for at least seven years. The IRS generally has a three-year statute of limita­tions for audits; however, this extends to six or more years if substantial errors are found on your return. Keeping records for seven years increases the likelihood that you’ll have what you need if an audit occurs.

Bank and Credit Card Statements

For everyday financial accounts, you can typically discard state­ments and related documents after one to three years. You’ll of course want to review them more regularly for accuracy and reconcile your accounts at least monthly.

Investment Statements

Keep record of stock and mutual fund trans­ac­tions for as long as you own the investment, plus an additional seven years after you’ve sold them. This helps with calcu­lating capital gains and losses for tax purposes and allows you to review for accuracy.

Loan and Mortgage Documents

Keep loan agree­ments, mortgage documents, and records of paid-off loans for the entire duration of the loan plus seven years. This guideline also applies to title insurance policies for real estate transactions.

Receipts for Major Purchases

Keep receipts and warranties for signif­icant purchases like appli­ances, electronics, or jewelry for as long as you own the items. These can be valuable for warranty or insurance claims, or if you decide to resell the item.

Estate Planning Documents

Keep wills, trusts, and estate planning documents for the duration of your lifetime, or until updated. Make sure your executor or heirs know where to find these documents.

Paystubs

Generally, you can dispose of paystubs once you’ve recon­ciled them with your W‑2 or annual tax statement. Keeping a year’s worth of paystubs for reference is typically sufficient.

Utility Bills

Utility bills can typically be discarded after you’ve paid them, if they aren’t needed for claiming tax credits (or some other tax purpose) or to resolve a dispute.

Important Financial Agreements

Keep copies of contracts, agree­ments, and legal documents related to signif­icant financial trans­ac­tions, such as home purchases or major loans, for the life of the agreement plus seven years (for tax purposes).

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If you have documents you need to keep but want to reduce your paper files, you can always digitize them and store them securely in electronic format. If you’re unsure about what to do with specific documents, it’s always a good idea to consult your financial adviser or a legal profes­sional, since the guide­lines might differ based on local regula­tions and your individual circumstances.