Law School
Frugality
Personal Finance
Productivity
Nutrition

How Long Should You Keep Financial Records?

paper_stack.jpg

Managing your money creates a lot of paper work. Your desk drawers can quickly fill with tax returns, bills, and bank statements. I know there are times when I feel like I’m swimming in financial paperwork. Well, here are some tips on exactly how long you should hold on to old financial records.

IRA Contributions

You receive different types of statements about your IRA: one is to show how much you’ve contributed; the other is to show how much you have in your account. You get the latter type of statement once every a quarter with a summary at the end of the year.

How long should you keep them? You’ll want to hold on to your records of IRA contributions until you withdraw the money during retirement in order to prove you already paid the tax on your contributions. You can get rid of the quarterly statements as soon as you match them with your yearly statement. You’ll want to keep the yearly statements until you start withdrawing.

Bank Records

These are probably the things that are taking up the most space. You get these once a month. They include statements of how much is in your savings and checking accounts, as well as your credit card balance.

How long should you keep them? It depends on what type of bank record it is. If it’s a record related to taxes and home improvements you should hold on to it. You should also hold on to credit card statements that contain tax related purchases for up to seven years. You can dump your monthly bank statements. Just make sure to shred them before you do.

Bills

Bills. Boo. Most people get rid of these suckers as soon as they pay them.

How long should you keep them? You can get rid of most bills once you pay them off. However, keep bills for larger purchases, like cars and jewelry, for as long as you own the property. They’ll be useful for insurance purposes.

Tax Returns

You get a copy of your return that you send to the IRS. These actually come in handy when filling out financial aid. Included with your tax returns are pay stubs and receipts that support deductions.

How long should you keep them? The general guideline given is to keep tax records for seven years. While the IRS has 10 years to assess taxes that you didn’t pay, they usually bring up challenges way before the 10 year period has elapsed.

Brokerage Statements

If you invest, you’ll get monthly statements telling you how much you’ve made each month.

How long should you keep them? Keep brokerage statements until you sell the investment. You’ll use them to prove your capital gains or losses when you do your taxes.

How to file this crap

Filing your financial documents doesn’t have to be a pain. Here are some quick tips on how to effectively file.

  • Get a small portable file box with manila folders.
  • Divide your file box into years.
  • Subdivide your years by the different financial paper work you receive: bank statements, brokerage statements, tax returns, IRA contributions, house payments, ect.
  • Go through files monthly and yearly and dump things you don’t need.
  • Make sure to shred financial documents to maintain privacy.

If you enjoyed this post, then make sure to subscribe to my RSS Feed

[tags]taxes, GTD, personal finance[/tags]