Financial Documentation - Should it Stay or Should it Go?

Nicole Sweigard, Financial Education Consultant—Retirement Plan Services

June 27, 2013

Managing Your Money

Articles

There’s no need to drown in your financial documents of the past. No matter what time of year it is, it's wise  to think about a little financial "spring cleaning." Most people will have documents they need to save short-term, long-term and then those they need to save forever. But how do you know what to keep and what you can shred? Organizing today will give peace of mind and potentially save time in the future.

There are two main reasons to keep financial records:

  • Tax purposes
  • Proof of payment

The Internal Revenue System (IRS) requires that you are able to produce records proving any income, deductions, or credit claimed for at least three years from the date of a return. This is the statue of limitations for how long the IRS has to assess if additional tax is required on your income. However, if you fail to report income that is more than 25% of your gross income, you will need to produce records for the past six years. As a result, experts recommend that you keep all documents that verify the information in your tax return for at least six to seven years. But what about those other documents?

Bank Statements Keep for one year, unless related to taxes, home improvements, or business expenses. Note: Union Bank & Trust has online statements; however, they are only available for two years.
Bills Keep bills for one year. If related to taxes, home improvements, business expenses, or large purchases, you should keep these documents permanently. (Large purchases include jewelry, cars, computers, etc.)
401(k) Account and
Brokerage Statements
Keep documentation until you sell. Keep the monthly and/or quarterly statements until the annual statement arrives. If they match, shred the monthly and/or quarterly statements and keep the annual until the securities are sold.
Home or Condominium Records Keep documentation until you sell. Keep all records relating to the purchase, sale, tax, and improvements done to your house. This is all factored in when you sell for capital gains purposes.
Pay Stubs Keep pay stubs for one year until you receive your W-2. If they match, shred the pay stubs and keep the W-2.
Taxes Keep this documentation for seven years or permanently. The IRS has seven years to perform an audit if they feel you made an error, and they have six years to audit you if they feel you underreported your gross income by 25%. There is no time limit on an audit if the IRS feels you filed a fraudulent return. You have three years to file an amended return when claiming a refund. Note: See IRS Publication 552 for a detailed rundown of the types of proof needed to verify various tax information.

Your “save forever” documents should be kept in a safe or a safe deposit box. These documents are listed below:

  • Birth and death certificates
  • Adoption papers
  • Citizenship papers
  • Military records
  • Marriage and divorce papers
  • Immunization records
  • Passports and social security cards
  • Updated legal documents such as wills, estate plans, living trusts, and powers of attorney

Visit our Retirement Plans Education Center for a full list of what records to save and how long to save it. For anything that’s ready to be shredded, watch for Union Bank's free Community Shred Day (typically in late April) and protect yourself against fraud by safely shredding and recycling up to 50 pounds of documents!

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This blog article is for informational purposes only, and is not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.