by Robin Cook, CTFA, CWS, Sr. Vice President
Suncoast Prosperity Advisors, a division of Suncoast Equity Management
For most of us gathering all the documents for our tax return preparation is not a distant memory. You may be asking yourself the question, how long should I retain these and other important documents? Below is a guide to this question and suggestions about how to store and destroy documents after their retention period.
How Long Should You Keep Certain Documents? A Guide to Retention Periods
In today’s fast-paced digital world, it can be tempting to toss out paperwork the moment it feels unnecessary. But knowing how long to keep certain documents is crucial for personal organization, financial planning, and even legal protection. Here’s a straightforward guide to help you manage your records like a pro.
1. Tax Records
• Retention Period: Keep for at least 7 years.
• Why? While the IRS generally has a three-year window to audit your returns, this can extend to six years if there’s substantial underreporting of income. Having these documents handy can save you trouble in case of an audit.
2. Bank Statements
• Retention Period: Keep for 7 years.
• Why? Monthly statements are useful for reconciling your accounts and identifying any discrepancies and for a potential tax audit. Once the 7th year is up, securely shred them unless they’re needed for legal purposes.
3. Pay Stubs
• Retention Period: Keep for 3 years.
• Why? Hold onto pay stubs until you reconcile them with your W-2 or 1099 forms during tax season. After that, you can discard them.
4. Medical Records and Bills
• Retention Period: Keep for 1 to 5 years.
• Why? Retain these until payments are confirmed and disputes (if any) are resolved. For ongoing medical treatments or conditions, keep records indefinitely.
5. Homeownership Documents
• Retention Period: Keep indefinitely or until you sell the property.
• Why? Deeds, titles, mortgage statements, and improvement records are essential for proving ownership and calculating capital gains taxes when selling.
6. Insurance Policies
• Retention Period: Keep as long as the policy is active, plus a few extra years.
• Why? Keeping these policies helps you track coverage and handle claims effectively.
7. Loan Documents
• Retention Period: Keep until the loan is fully paid off, plus 7 years.
• Why? Proof of repayment can protect you if questions arise about your payment history.
8. Utility Bills
• Retention Period: Keep for 1-2 years, unless needed for tax purposes.
• Why? These documents are generally used for short-term purposes like resolving billing disputes or verifying residency.
9. Personal Identification
• Retention Period: Keep forever.
• Why? Documents like birth certificates, passports, and Social Security cards, marriage licenses, divorce decrees, certificates of ownership for valuables and legal documents are key to your identity and should be safely stored for life.
Digital vs. Physical Storage
With technology at your fingertips, consider going digital! Scanning and storing records in a secure cloud or external drive can free up physical space while making it easier to retrieve documents when needed. Just ensure you have robust cybersecurity measures in place. Digital records also protect the loss of our important documents due to natural disasters such as hurricanes and fires.
When to Shred
For documents you no longer need, always shred or securely dispose of them to protect sensitive information like bank account numbers and Social Security details.
Staying organized with your document retention can simplify your life, protect you from legal and financial pitfalls, and save valuable time. When in doubt about whether to keep or discard something, a general rule of thumb is: when it’s tied to taxes, finances, or legal matters, err on the side of caution. Your future self will thank you!
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