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Financial Documents: What to Keep and What to Shred

Updated: Jun 13, 2021

When is it safe to finally throw away financial documents?

Although you may need to save some documents for future use, some can be shredded and thrown away. Here is an easy-to-follow guide from a financial advisor you can trust.

Receipts: 3 Years

Anything that is itemized on your tax return should be kept for three years with your tax records. Our advice is to store these itemized receipts in a folder in a safe space until it is safe to discard.

Home Improvement Records: 3-7 Years

Be sure to hold onto these for at least three years after the tax return's due date that includes the income or loss on the home when it is sold. If your future plans are to sell your home, keeping receipts will help lower the taxable gain on the house when you do sell.

Medical Bills: 1-3 Years

At any time during the first year, your insurance company could request proof of a doctor visit or other verification of medical claims. As of Jan. 1, 2019, you may only deduct the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of your adjusted gross income. If you take that deduction, you'll need to keep the medical records for three years for tax records.

Paycheck Stubs: Up to 1 Year

If you are not paperless, be sure to hold onto your pay stubs until the end of the year, and then it is safe to discard them after comparing your W-2 to annual Social Security Statements.

Utility Bills: 1-3 Years

The average homeowner should keep utility bills for one year. If you are claiming a home office tax deduction, you must keep these bills for three years.

Credit Card Statements: Up to 3 Years

The average person can throw away statements once charges are confirmed and paid for. If you are using statements for tax deductions, these should be held for three years.

Investment and Real Estate Records: 3 Years

This is incredibly important for all of our readers; if the IRS audits you, you will need this documentation for capital gains. These records will help track your cost basis and the taxes you owe when you sell stock or properties. Once you receive an annual statement, you can shred monthly statements.

Bank Statements: 3 Years

The IRS plays a considerable role in why many people need to keep their bank statements for three years. If your bank provides online statements, you can choose to save those to cut down on shredding paper.

Record of Loans that have been Paid Off: 7 years

In this instance, if there is ever a processing error down the road, you will want to be covered if your loan is ever in question. This includes student loans, car loans, bank loans, etc.

Active Contracts, Insurance Documents, Property Records, or Stock Certificates: Keep until no longer Active

Please keep all of the items as mentioned above while they are active. After a contract expires or a policy expires, you can discard these documents.

Marriage License, Birth Certificate, Wills, Adoption Papers, Social Security Cards, Death Certificates, Records of Paid Mortgages: Forever

Some documents should never be discarded, ever. These documents are essential for confirming your identity and ensuring that money, property, and other valuable items are yours to keep until you decide otherwise. These documents should be stored in a safe space like a waterproof/fireproof safe.

Online Copies: Easy To Find

Keeping paper copies of documents is always a good idea, but many companies are now going paperless, so there are many circumstances where your data is safe online. It is good to get an app to store images of financial documents and receipts to access them digitally. You can never be too safe!

So where should you keep your financial records?

The most secure way is to scan and encrypt your records which you can store locally on a hard drive with an encrypted cloud backup.

If you like the idea of digital records without setting up the technology yourself, select banks now offer virtual safety deposit boxes. They allow you to securely upload documents, many of them free if it remains under a certain storage size.

If you are uncomfortable with digital copies, then you can keep paper copies securely in a locked safe. Make sure that it is both fire and waterproof or you can put them in a safety deposit box in a vault at your bank.

One key thing to note is that that a living will and any other document that is usually needed in an emergency or within a short time frame should not be secured in a safety deposit box. For example, documents containing one's funeral wishes. This is because accessing them is usually limited to banking hours. And they are typically only accessible only to authorized individuals.

What records should you shred?

When it comes to what specific records you should shred, here's a list to keep in mind:

1. Credit card offers in the mail. So no one else applies for credit in your name.

2. Canceled or voided checks. These checks have your account number and routing information on them.

3. Expired credit cards. The magnetic strip still has encoded information on it.

4. Old pay stubs. You can always request this from your employer.

Keep in mind that, if you choose no longer to keep a financial or personal record, it's a good idea to shred it to protect yourself from identity theft. To shred documents at home you can purchase an inexpensive cross-cut paper and credit card shredder like this one below from Amazon.

The right financial record keeping can save you a ton of stress

The right financial record keeping ensures that you are aware of your big financial picture. More importantly, when you are aware of all your records, you can protect yourself from and quickly identify any identity theft.

Make sure that if you ever become incapacitated, the people in your life who would need these documents know where to find them. It's important to make sure that whoever would need to pay the bills and find these types of documents can access them easily.

Don't forget, if you are unsure if you should keep something, keep it. It's better to keep it and not need it than to need it but have thrown it out.

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