Posted by: The Life and Legacy Planning Group
In a society dominated by paperwork, the question of how long to hold on to important documents has been baffling for most people. We especially worry about documents of a financial or personally identifying nature. People who worry about losing something important sometimes hoard everything; others who worry about things like identity theft are too quick to shred documents. Most of us, however, lie somewhere between these two extremes: Simply and utterly confused about what to keep and how long to keep it.
You do need to save certain documents longer than others, and— for financial and estate planning purposes—these documents should be organized and accessible. Some documents should be kept forever, others for shorter periods of time—yet many documents aren’t actually important enough to save. While it might seem like a good idea to hang on to everything, the resulting clutter might make it difficult to locate important papers amid all the unimportant ones. And, even with digital documents, you can still run out of space.
Let’s help unravel this confusion by offering some guidelines on which documents should be kept, and for how long.
Keep These Documents for Three Months or Less:
- ATM receipts
- Credit card receipts
- Receipts for small or everyday purchase
- Utility bills
Unless you have a specific issue (such as company reimbursement practices or business deductions on your income tax return), after 1-3 months, these receipts become inconsequential and just add to the clutter in your home or office. Your bank statements will reflect ATM withdrawals, and your bank and credit card statements and/or cancelled checks can be proof of payment for utilities and other regular purchases.
Keep These Documents for One Year:
- Monthly mortgage statements—Your annual tax statements will eventually make these redundant.
- Paycheck stubs—Once you’ve reconciled these stubs with your annual W-2, you no longer need them.
- Checkbook ledgers (if you use them)—Many people today keep ledgers online using an accounting software. If you do the old-fashioned handwritten check ledger, you won’t need it longer than a year.
- Insurance statements and records—Once you receive a current policy renewal or statement, the old one becomes obsolete.
- Investment account statements–In general, store these for at least one year. Include your monthly statements as well as any trade confirmations.
- Undisputed medical bills and receipts—Keep these documents if you’re haggling with insurance or have a personal injury case in the works, keep these as evidence. Otherwise, you can get rid of them after a year.
Keep These Documents for at Least Seven Years:
- W-2 and 1099 forms—These documents prove your income for loans and possible tax audits.
- All tax-related receipts—These documents justify your tax deductions if the IRS wants proof of them.
- Cancelled checks for tax, business, mortgage and home improvement purposes—Some people like to save all their cancelled checks, but if you want to minimize, go through these checks once a year and shred any that are irrelevant while keeping those that relate to your tax, business, mortgage, or home improvements.
- Bank statements–Keep them for at least one year, either in printed form or saved in electronic form. They can be useful when identifying potential fraud, identity theft or other anomalies with your account. As with all financial or legal documents that have personally identifiable information, always shred paper copies before discarding.
- Disability records and unemployment income stubs—It’s a good idea to keep paperwork related to income you receive directly from the government.
Keep These Documents Forever/Indefinitely:
- Income tax returns—Some suggest your returns can be shredded after seven years along with your tax preparation documents, but we recommend holding onto the returns themselves.
- Personal identification documents—These include birth certificates, Social Security cards, current and outdated passports, etc.
- Legal documents—These include marriage and divorce certificates, lawsuit settlements, etc.
- All receipts and documents related to your home or real estate holdings—These include mortgage documents, title/deeds, home improvement receipts and records related to buying and/or selling the property (including commissions and fees). Keep these documents for as long as you own the property, plus a minimum of six years after selling.
- Vehicle titles and/or related loan documentation--Hold these for at least three years from the date the transaction is finalized. Many people keep them for 10 years or longer, however, because they can be helpful even long after the transaction is done if there are any questions.
- Receipts for all major purchases—Keep these receipts for warranty purposes and to show value for possible insurance claims. You can shred these when you sell.
- Annual investment and retirement account statements–Your quarterly statements should be held until the annual statement arrives. At that point, cross-check the quarterly statements with the annual one. If everything matches, you can shred the quarter statements. Keep the annual records until the account is closed.
- Education records—These include high school and college transcripts, as well as diplomas and degrees.
- All relevant financial planning records—These documents include wills, living wills, trust documents, pension plan documents, power of attorney designation, medical and burial information, etc.
Electronic versus Physical Storage
In today’s digital age, many people choose to save important documents electronically by scanning them and saving them to a hard drive or into a cloud-based storage service, like Dropbox, Box, Google Drive, or iCloud. This strategy is an excellent one for saving space and reducing clutter. If you choose to do so, we recommend backing up these documents in several places with at least one backup offsite (for example, if you use a secure cloud-based storage, make sure you have a backup on a second service or use a hard drive stored in a safe deposit box). However, you should always keep a physical copy of the following items, preferably stored securely in a safe deposit box:
- Birth certificates
- Social Security cards
- Passports and other legal IDs
- Marriage license
- Property deeds and related mortgage documents
- Vehicle titles and related loan documents
- Pension plan documentation
- Insurance policies
- Financial planning documents
There may come a day when we can go 100% paper-free, but we’re not there yet.
Final Tips about Organization
When figuring out which documents to keep and which to shred—as well as how long to keep documents—a good organization system will help keep things from devolving into chaos and clutter. This system can be as simple as a filing system with folders labeled according to “expiration date” (i.e., 3 months, one year, etc.) or an online filing system with similar labels. Revisit your paperwork regularly to keep things up to date.
Keeping up with documentation can be a challenge, even for the most diligent families, and even with the most organized systems. For financial planning purposes, we can help you set up a personalized legal document plan to help you stay on top of your planning needs. Contact us for more information.