I am often surprised at what weekly email blasts receive the most views. One of our more accessed articles is the Personal Record Retention article. Clients often ask record retention questions during the year, especially as they prepare to downsize or sell their homes or if they just want to declutter. The two most popular times of year appear to be January when individuals make their New Year’s resolutions, and April when the itch for Spring Cleaning begins.

So, on the heels of our article, Top Ten List of Resolutions for Financial Success, we have updated the Rules of Personal Record Retention.

We recommend going through your files annually to determine what to keep and what can be disposed of. Before we go into specific paperwork and timeframes, there are two overriding rules to follow:

Record Retention Rule #1: Store Your Important Documents Safely

It is essential to store important documents safely while having them easily accessible.

For documents that you might need to access periodically, such as a passport, birth certificate, or marriage license, we recommend purchasing a fireproof safe for your home or renting a safety deposit box. The main accessibility issue with a safety deposit box is that you can only access that information during banking hours.

For documents that do not require an original copy but do need to be kept on file, we recommend scanning or downloading the vital information into a reputable cloud-based filing system. Techradar published a review of the best cloud storage services for 2024 if you are looking for some ideas.*

Record Retention Rule #2: Dispose of Your Important Documents Safely

Thank you for recycling. However, that may not be the safest way to dispose of your documents.

It is vital that you shred anything that contains Personally Identifiable Information and is no longer needed. Not only will this help you purge, but it can also help protect you from identity theft. Identity thieves are known to root through trash and recycling bins to obtain personal information that will allow them to commit acts of identity theft and fraud. Therefore, we recommend shredding everything that contains personal information, such as your social security number, address, birth date, and account numbers. If you bring your documents to a large shredding facility or a sponsored ‘Shred Day’ through your town, ask what safeguards they have in place to protect the information. Better yet, ask them to place everything directly into the shredder so you can witness the destruction.

EKS allows clients to drop into the office and place their sensitive documents requiring shredding into our locked shred box. Call us if we can help.

How Long You Should Keep Financial Records

Generally, anything related to calculating income tax should be maintained for a minimum of three years, but often no more than seven years. The IRS has three years to audit a tax return unless there is evidence of fraud (which carries an unlimited timeline) or a significant underreporting of income greater than 25%, which extends the audit time to six years. Therefore, when in doubt, seven years is a good rule of thumb for maintaining documents. This includes all business-related items that are written off for tax purposes on your personal income tax return and support for all medical deductions. For those who keep electronic records, the guidelines remain the same.

With the proliferation of online banking, there is less of a need to maintain bank statements, ATM receipts, and canceled checks once you have reconciled your bank account. However, if a check was used to support an income tax deduction, it should be maintained with the income tax return for seven years. If you are planning to apply for a mortgage or other type of loan, we recommend maintaining three months of statements in paper format. Should you require statements that cannot be obtained online, banks will furnish copies upon request.

Here is a listing of different types of personal records and the recommended holding period for each.

The following documents should never be discarded:

The following documents should be discarded once they are rendered obsolete:

• Estate planning documents, including Wills, Powers of Attorney, and Advanced Medical Directives, can be shredded once they are revised.
• Home purchase information and documentation of capital improvements can be shredded after the house is sold.
• Mortgage and loan documents should be kept for 3 years after the loan has been repaid.
• Passports and driver’s licenses can be shredded once they are expired.
• Annual Social Security statements can be shredded once you receive the newest one.
• Warranties can be shredded once they expire or the product is disposed of.
• Automobile records should be maintained for as long as you own the car. If they support an income tax deduction, these records should be maintained for seven years.
• Owner’s manuals can be kept as long as you own the product it supports. However, they are often available online, in which case you can discard the paper copy and download a digital copy for reference.

The 7-Year Retention Rule

The following documentation should be kept for seven years:

Income tax returns and supporting documentation.  The general rule is seven years. The IRS has three years to audit a tax return with the following exception: underreported income greater than 25% has a six-year statute of limitations. Fraud, however, does not have a time limit. Supporting documentation includes W-2 support, 1099 statements, purchase and sale confirmations for investments sold outside of retirement accounts, and acknowledgment letters from charities.

Investment documents. Capital gains and 1099 Forms should be maintained for seven years with the corresponding tax return. Trade confirmations in non-retirement accounts should be maintained until the asset is sold and then included in the support for the tax return and held for an additional seven years.

Accident reports and claims should be maintained for seven years.

Charitable contributions.  Maintain receipts and acknowledgment letters for seven years with the applicable income tax return.

The 5-Year Retention Rule

Medical bills and insurance. Premium statements, doctor’s bills, prescriptions, and hospital bills should be kept for five years unless they are needed to support an income tax deduction, in which case you should keep them for seven years.

Property and Casualty insurance policies should be kept for five years or until the asset is sold.

More Retention Guidelines

Credit card and sales receipts should be kept until a statement is received and reviewed. You may also want to keep these until the warranty expires or you can no longer return the item.

Credit card statements should be maintained for three months.

Pay stubs and W-2 tax forms.  Most people have online access to their pay stubs and thus do not need to maintain a paper copy. The W-2, which is the annual reporting of your work income, should be maintained as support for your income tax return.

Utility bills.  Keep bills for three months unless you need to support an income tax deduction, in which case you should keep the bills for seven years.

Auto records should be maintained for as long as you own the car. However, if you need to support an income tax deduction, records should be maintained for seven years.

A Note About Going Green

Technology has made it much easier to go paperless. Many people no longer receive paper copies of bills, statements, policies, or even receipts. There’s nothing wrong with this, but you do need to ensure you have immediate, on-demand access to any document you may need. Also, go the extra mile to protect your accounts, implementing strong passwords and multi-factor authentication, for example.

If you have questions about this topic, feel free to contact us.

*EKS Associates is not affiliated with Techradar or any of the products mentioned in their article, nor does EKS Associates endorse Techradar or any of the products mentioned in their recommendations. We provide these resources for educational purposes only. Individuals should research products to determine what is best for their needs.