How Long Should I Hold On to Financial Documents?

By Emma Diehl · May 16, 2023 · 6 minute read

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How Long Should I Hold On to Financial Documents?

Often, there are two camps of people when it comes to wrangling financial documents: Some keep everything, every ATM receipt, every bank statement, sometimes in a drawer or box with little to no organizing principle. Others throw away (hopefully after shredding) just about everything that arrives in the mail.

The best approach is likely somewhere in between. There is a happy medium. Here, you’ll learn how to keep just what you need, organize it well, and dispose of financial documents properly when they no longer serve a purpose.

The Importance of Financial Statements

“Out of sight, out of mind” is a cliche for a reason. Once taxes are filed, paychecks are deposited, and the rent or mortgage is paid, we tend to forget about these transactions, dumping the receipts in a deep file cabinet or throwing them away altogether.

However, the consequences of financial documents and bank statements stick around long after they’ve been settled. For example, the IRS can come calling years after a person files taxes if the organization suspects that income was misreported. Or, in the event of loss or damage, having a record of purchase for big-ticket items like electronics or jewelry can make it easier to file a claim.

Keeping track of financial statements can help serve as protection or proof if a transaction is challenged or misreported. Without the statement, people might spend days trying to obtain duplicate records, when they could have just had them neatly filed in the first place.

Not everything needs to be saved forever, but some things should be safely filed away for a rainy day.

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What to Keep and For How Long

Like items in a grocery store, each type of financial document has its own expiration date. Some will be relevant years after they’ve been filed; others can be tossed within months. Here’s the general rule of thumb of how long a person should keep each statement:

Tax Documents: 6-7 Years

Keep tax documents — anything related to filing taxes — around for seven years. Why so long? The IRS can audit anyone up to three years after they file if the agency suspects that an error was made in “good faith,” aka an accident.

That also applies to the opposite situation: If a filer thinks the IRS made an error, the filer can submit an amended income tax return up to three years after the fact for a refund.

Additionally, the IRS has six years to follow up on returns if it thinks the filer underreported income substantially, meaning by 25% or more.

It’s not a bad idea to keep the tax return, in addition to supporting documents. That could include evidence of:

•   Retirement plan contributions

•   Charitable contributions

•   Interest payments on a mortgage

•   Alimony or child support payments

Record of Sales: 3 Years

From selling stock to selling a home, and every large sale in between, it could be smart to keep these records of sale for at least three years after the transaction takes place. These documents can be called up in tax-related issues.

Paycheck Stubs, Bills, Bank Statements, Investment Statements: 1 Year

If someone isn’t using direct deposit for payday, they should keep their physical paychecks for a year. Once they receive their W-2 and confirm that the amounts match, the stubs can go.

Utility bills, bank statements, and other bills should stick around for a year , just to be safe. Budgeters can use them to compare balances month over month. It also can be a helpful habit to check over bank and credit card statements each month. It’s a chance to catch and dispute fraudulent or incorrect charges. In addition, bills for services like medical treatment and auto repair should be kept for at least for a year for reference.

Investment statements that are distributed quarterly should be kept on hand until the annual statement is revealed and the numbers are lined up.

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Receipts, Resolved Credit Card Statements: Toss It

Unless purchases are logged manually, a person should feel comfortable tossing receipts almost as soon as they acquire them. As long as they don’t plan to return the item, all they should do is confirm the amount against the debit or credit card charge, then send that little slip to the trash.

Similarly, if a credit card is paid in full each month, there’s not much reason to keep the statement lying around. Again, it can be used to check charged amounts and spot mistakes or fraud, but once statements are resolved against transactions, it should be okay to ditch the statement.

Although there are suggestions for how long people should keep a statement, at the end of the day, they should trust their gut. If there’s an urge to hold on to something not listed above, keep it.

Three Ways to Store Sensitive Documents

It won’t matter what a person saves and shreds if they don’t know where to find records in the long run. Safely storing sensitive financial documents doesn’t really mean tucking them away and forgetting about them. Here are a few ways to store and organize financial records:

•   Use an old-school filing system. Finding an affordable, fire-safe file box to keep statements in is already a massive step up from the bottom of a junk drawer. Everyone will have their own approach to logical filing, but it could be done by year, type of record, or institution the record comes from.

Some might be tempted to go extra safe and take this paperwork to a safety deposit box at the bank. However, if the documentation is needed, it won’t do a person much good sitting miles away in a bank vault. Keeping it close and safe is probably preferable.

•   Scan and save online. Many smartphones come with the capability to scan documents, and there are other well-reviewed scanning apps on the market. Those who tend to lose paper might choose to scan everything and save it online. The only hitch is keeping up with the scanning, and saving all documents to the cloud instead of just on the phone.

•   Go paperless. Many institutions offer paper-free transactions, meaning customers don’t get statements in the mail. Online banks vs. traditional banks have made this a priority. Going paperless does not mean having to log on to each site to get financial information, but it does mean a person is less likely to lose papers.

Going paperless with financial statements may require a little more work to access records — people can’t just wait for documents to arrive in the mail. But if done correctly, they can find the papers they need with the click of a few buttons.

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The Takeaway

Going paperless with records doesn’t have to be tricky or time-consuming. That’s one of the benefits of opening an online bank account like SoFi Checking and Savings. It’s easy to find the information you are looking for online, as well as to track your spending and saving in one convenient place. What’s more, SoFi offers a competitive annual percentage yield (APY) and charges no account fees, which could help your money grow faster.

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