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| Keeping financial records |
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| You can't take everything with
you, but the following are suggestions about how long
you should keep personal-finance and investment records
on file. |
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Taxes
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Returns |
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Canceled checks/receipts (alimony, charitable contributions,
mortgage interest and retirement plan contributions) |
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Records for tax deductions taken |
Length of time to keep:
Seven years
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The IRS has three years from your filing date
to audit your return if it suspects good-faith errors. |
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The three-year deadline also applies if you discover a mistake
in your return and decide to file an amended return to claim
a refund. |
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The IRS has six years to challenge your return if it thinks
you underreported your gross income by 25 percent or more. |
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There is no time limit if you failed to file your return or
filed a fraudulent return. |
IRA
contribution records
Length of time to keep:
Permanently
If you made a nondeductible contribution to an IRA, keep the records
indefinitely to prove that you already paid tax on this money when
the time comes to withdraw.
Retirement/savings
plan statements
Length of time to keep: From one year to permanently
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Keep the quarterly statements from your 401(k) or other plans
until you receive the annual summary; if everything matches
up, then shred the quarterlies. |
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Keep the annual summaries until you retire or close the account. |
Bank
records
Length of time to keep: From
one year to permanently
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Go through your checks each year and keep those related to
your taxes, business expenses, home improvements and mortgage
payments. |
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Shred those that have no long-term importance. |
Brokerage
statements
Length of time to keep:
Until you sell the securities
You need the purchase or sales slips from your brokerage or mutual
fund to prove whether you have capital gains or losses at tax time.
Bills
Length of time to keep:
From one year to permanently
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Go through your bills once a year. |
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In most cases, when the canceled check from a paid bill has
been returned, you can shred the bill. |
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However, bills for big purchases -- such as jewelry, rugs, appliances,
antiques, cars, collectibles, furniture, computers, etc. -- should
be kept in an insurance file for proof of their value in the event
of loss or damage. |
Credit card receipts and
statements
Length of time to keep: From 45 days to seven years
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Keep your original receipts until you get your monthly statement;
shred the receipts if the two match up. |
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Keep the statements for seven years if tax-related expenses
are documented. |
Paycheck
stubs
Length of time to keep:
One year
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When you receive your annual W-2 form from your employer, make
sure the information on your stubs matches. |
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If it does, shred the stubs. |
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If it doesn't, demand a corrected form, known as a W-2c. |
Type
of record: House/condominium records
Length of time to keep: From six years to permanently
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Keep all records documenting the purchase price and the cost
of all permanent improvements -- such as remodeling, additions
and installations. |
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Keep records of expenses incurred in selling and buying the
property, such as legal fees and your real estate agent's commission,
for six years after you sell your home. |
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Holding on to these records is important because any improvements
you make on your house, as well as expenses in selling it,
are added to the original purchase price or cost basis. This
adds up to a greater profit (also known as capital gains)
when you sell your house. Therefore, you lower your capital
gains tax.
For tips on creating an organization system that works, see
the main story, "How
to organize your financial paperwork."
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