How long you should keep financial statements depends on the type of document and its importance for tax, legal, or personal reference purposes.
Here is a general guide for how long you should retain different types of financial documents:
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1. Bank Statements
- Retention Period: 1 year
- Reason: Keep bank statements for at least 12 months to reconcile your accounts and check for any errors or discrepancies. After that, if you’ve confirmed everything is correct, they can be discarded, but if they pertain to taxes, keep them for longer (typically 7 years).
2. Credit Card Statements
- Retention Period: 1 year, unless needed for tax purposes.
- Reason: Hold onto credit card statements for at least a year to verify purchases and ensure there are no fraudulent charges. If the statement includes expenses for taxes, hold onto it for 7 years.
3. Tax Returns and Related Documents
- Retention Period: 7 years
- Reason: The IRS generally has a 3-year statute of limitations for auditing your tax return, but if you underreported your income by more than 25%, they can go back 6 years. It’s recommended to keep tax returns and all supporting documents for 7 years just to be safe.
4. Pay Stubs
- Retention Period: 1 year (until you receive your W-2 or other annual tax documents).
- Reason: Keep your pay stubs to compare with your W-2 at the end of the year. Once confirmed, you can discard them unless needed for tax purposes.
5. Retirement Account Statements (401(k), IRA)
- Retention Period: Keep annual statements permanently, discard quarterly statements after reconciling with the annual statement.
- Reason: The annual statements provide a summary of your contributions and account performance, which is important for long-term tracking and tax reporting.
6. Investment Statements (Non-Retirement Accounts)
- Retention Period: 7 years
- Reason: Keep monthly or quarterly statements until you receive your annual statement, then keep the annual statement for tax purposes and investment performance tracking.
7. Mortgage Statements and Related Documents
- Retention Period: Keep statements until the loan is paid off, then keep the payoff notice permanently.
- Reason: It’s important to retain documents proving your payment history and the mortgage payoff for potential future reference, like when selling the property.
8. Utility Bills
- Retention Period: 1 year, unless needed for tax deductions.
- Reason: Utility bills can generally be discarded after confirming payment, but if they are used as deductions on your tax return (such as for home offices), keep them for 7 years.
9. Receipts for Major Purchases
- Retention Period: Keep for as long as you own the item, or until the warranty expires.
- Reason: Receipts for major purchases, such as appliances or electronics, are essential for warranty claims, returns, or insurance.
10. Loan Documents
- Retention Period: Keep until the loan is fully paid off, then retain payoff notices permanently.
- Reason: Keep loan statements and payment history in case you need proof of payments or settlement.
11. Property Records (Real Estate)
- Retention Period: Keep for at least 7 years after selling the property.
- Reason: You need property records, including proof of purchase, improvements, and the final sale for tax purposes. These documents are essential for calculating capital gains taxes when selling the property.
Conclusion
As a general rule, documents related to taxes should be kept for at least 7 years. For items like receipts, pay stubs, and utility bills, shorter retention periods are typically fine unless they are needed for tax or warranty purposes. For long-term records like mortgage documents, retirement accounts, and real estate records, keep them permanently or until the debt is fully satisfied. Proper record-keeping helps protect you in the event of audits, disputes, or claims.
