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Plan Well, Retire Well

Saving and investing your money

How long should I keep financial documents and records?


It happens every January. Gyms are filled to bursting with people determined to get in shape. Ads for diet plans fill seem to appear during every commercial break. And you're probably vowing to get rid of all that paper that's stacked up around the house. What's OK to throw away? And what's not?

Here are some general guidelines that may help.

Toss

  • Pay stubs from 2010 or before. Your W-2 will give you all the tax data you need from those pay stubs. If there's additional information doesn't show up on the W-2, such as the amount of vacation or sick leave that you've earned or used, keep your most recent pay stub and perhaps the final one from each of the last couple of years.
  • Utility bills. Did the company receive and credit your last payment? Once you get the next statement and know that they processed your payment, you can toss the older statements. But you might want to keep gas and electric bills for a year or so if you're tracking your energy usage or planning to sell your home; prospective buyers may ask what it costs to heat and cool. If you can access the information online, you can still safely toss any paper statements.
    • Exception: If you deduct part of your utilities as home office expenses, you'll need to keep those utility bills according to the guidelines for tax records, below.

Keep for a while

Warranties and purchase records. To get a product repaired that failed during the warranty period, you'll usually need both the warranty information and proof of when you purchased it. An easy way to keep that information together is to staple your receipt inside the use and care booklet, which usually also contains the warranty information. But ask yourself whether you would even bother with the warranty claim. I remember my husband watching me carefully file away the receipt for a $15 item and asking, "If it quits, will you really bother with the warranty?"

Keep for a long time

The Internal Revenue Service can audit anyone for up to three years. That goes up to six years if they charge that you substantially under-reported your income. And there's no time limit if you filed a fraudulent return or if you never filed the return. So keep all your tax records – both the tax return and all the documentation – for at least three years, and preferably six. You don't file until the next year, so it may seem like seven years. Your 2011 return will be filed in 2012 and you want to keep it until 2018.

And how about records of investment purchases and sales, or records of home purchases and improvements? For investments, you'll need records of the original cost plus any reinvested dividends or capital gains. Keep those until you've sold the last share of that particular investment, and then keep the records an additional six years in your tax file. Ditto for home purchases: you'll need the information about the purchase price and the cost of any improvements. If you had a taxable profit (more than $250,000 for single persons, $500,000 for married filing jointly if you owned and lived in the home for at least two of the past five years), you'll also need to keep those records for six years after you filed the taxes.

And one last thing

If you're tossing documents with sensitive information such as financial account numbers or social security numbers, shred, shred, shred. If it's too much to handle on your own, look up document destruction service. Or watch for a shredding event in your community.

You can learn more about what to keep and for how long on my website, Dealing with Clutter. And the IRS has an entire publication about Recordkeeping for Individuals.



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