Spring Cleaning – Document Retention

In the ever-evolving world of technology and electronic capabilities, it seems as  though we can do everything with a computer, hand-held device or iPad.  We can read e-books, stay in touch by email and Facebook, we can “tweet” and store music, pictures and records electronically.  While I don’t necessarily want to make the argument for electronic storage of financial records versus “hard-copy” paper records, here are some general guidelines for how long certain documents should be retained, regardless of the method you choose to save them.

Bank Statements:  Some “experts” say that you need only keep bank statements until they are reconciled against your accounts.  Some banks will offer electronic statements only for a limited period of time and may assess fee for access to historical information.  While you may balance your checking account on a monthly basis, if you think you will need to access old statements to validate account activity, a bank statement is one document it may make sense to keep electronically.  In general, these records should be kept based on your need for having access to historical statements.

Retirement Accounts/401(k)/IRA Statements:  Again, this may come down to your personal comfort level (for troubleshooting future disputes), but after reconciling your accounts, these historical statements would not necessarily be a “must-keep.”  In theory, the custodian or administrator of your accounts should have your information stored electronically, but you may want to confirm how far back your information is saved (different custodians may have different guidelines for record retention).  One exception would be tracking IRA contributions – specifically after-tax contributions.  These contributions can be critical to calculating applicable taxes when withdrawals are taken, so absent the more practical (and official) IRS Form 8606, you’ll want to keep statements that confirm your contributions to the account.

Monthly Bills/Credit Card Statements:  This depends on personal preference.  You can likely get rid of these statements when you are comfortable that you will not need them to prove any payments or account activity.

Paycheck Stubs:  Paycheck stubs probably make sense to keep until the end of a tax year, at which point you may want to keep your final paystub or Form W-2.  Your final paystub or W-2 can be helpful if you ever needed to validate earnings for purposes of Social Security benefits or a defined benefit pension plan.

Insurance Policies:  You only need to keep your most recent insurance policy, as older policies no longer apply.  Insurance companies can usually produce original policies (sometimes for a fee), but proof of insurance is certainly easier if you have the document in hand (or a current statement confirming coverage).

Tax Returns:  Keep tax returns for at least seven years. You have three years to file an amended return if you think you’re due a larger refund, and the IRS has three years to audit you if they think you made a mistake. The IRS has six years to audit you if they think you underreported income and there is no time limit if they think you filed a fraudulent return.  Annual tax returns may be documents you choose to save indefinitely.  Like your W-2s, they can be a way to prove historical income and can also provide a means for confirming investment and business activity.

Brokerage Statements:  It isn’t necessary to keep brokerage statements except those that verify purchases (i.e., document cost basis in an investment security).  If you sell a security and report the sale (including gain and loss) on your annual tax return, you will no longer need the statement that identifies the cost basis for that holding.  Given that dividend reinvestments and systematic purchases can make multiple statements critical, these statements represent another category it might make sense to store electronically.  Your investment advisor or account custodian should be able to reproduce needed statements, but verify how long they retain records.

Loan Documents and Home Records/Receipts:  Loan documents should be kept until the loan is paid in full or you sell the property and receive or transfer title.  Receipts related to improving your property can be essential to calculating cost basis on your home and/or dealing with insurance claims.

Estate Planning Documents:  The most recent copies of your executed estate planning documents also trump any historical or restated versions.  While your documents should be on file with your attorney (and your Family CFO), having these documents accessible will certainly make things easier on your heirs and/or your personal representatives in the event of your death.

Clearly, electronic document storage makes keeping more of these relevant documents an easier task. Perhaps some of the information included in this article will help ‘thin out’ some of your file cabinets, bankers boxes or hard drive—or at least help you organize what you do keep.  This advice is only a guide when in doubt, verify that key documents your are unsure about keeping are held by a service provider or financial professional.  With the increase in identity theft, all documents you choose to give up should be shredded.  Moneta Group offers its clients an annual shred day (this year on Saturday, May 14 and May 21) and clients are invited to bring large quantities of documents which are then destroyed by companies specializing in the destruction of personal information in a confidential manner.

So when you are spring cleaning over the next couple months, don’t forget about the bulging office closet of files.  If you happen to be a document “pack-rat,” purge safely and watch out for potential paper avalanches!

Ryan Martin, CFP®

Ryan is the professional consultant for Mike Johnson.

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