Record Retention for Individuals

Keep It Or Toss It?

By Jill L. Shattler, CFP^®
Partner
Trust Company of Illinois

April 15 signals the end of tax preparation and the beginning of spring.  It also is a great time to regain control of records—financial and other.

Sometimes people fear that by clearing out paper-based records, something important will be thrown away.  Instead, they keep everything and end up losing vital information amongst the clutter.  There are no hard and fast rules on how long to hang onto certain documents, which can be challenging when trying to get organized.  So to help you decide once and for all what to keep and what to toss, we’ve compiled this list of general guidelines from leading industry experts.       

A final thought:  with the threat of identity theft coming largely from paper documents containing confidential information, it is important to securely dispose of any paper showing a social security number, a federal ID number, or an account name and number.  These should be completely destroyed through shredding.  As an ongoing service to our clients, TCI offers free shredding.  Just bring your old documents into our office and we will take care of their safe destruction.  Clutter control has never been easier! 

TAX RETURNS

Let’s begin with these all important documents which are likely to be on the top of your desk these days.  The general rule for tax records is to retain them for at least seven years.  The IRS has three years to audit you from the date you file your taxes if it suspects good-faith errors, six years if you underreported your income by at least 25%, and an unlimited time if you did not file a return or filed a fraudulent one.  You must also keep all of the supporting documentation that went into the preparation of your returns, including W-2 forms, 1099 forms, investment confirmation statements, and receipts for deductions and credits.

STATEMENTS

• Bank Statements:  Keep bank statements long enough to check the accuracy of the transactions. If there is a problem, keep until it is resolved.  If this is your only proof of tax-related items, such as charitable donations or medical or tuition expenses, then file a copy with your tax records.  Sometimes a three month history is needed if you will be applying for a mortgage. Other than these exceptions, there is no need to hold onto old statements.
   
• Investment Account Statements: Keep for as long as you own the account, plus another seven years after any asset is sold to document your capital gain or loss on the investment.
   
• Brokerage Trade Confirmations/Dividend Reinvestment Statements:  It is important to keep all trade confirmations and dividend reinvestment statements for the entire time you own an asset, plus an additional seven years after it is sold.  These records will establish the asset’s cost basis, which will determine if you have a gain or a loss. (Note: TCI keeps detailed records on the cost basis of all assets we purchase on your behalf, as do many bank trust departments.  Brokers generally do not record this data on their statements and the burden is on the account holder to track and maintain all documentation on cost basis.) 
   
• Retirement Account Forms and Statements:  Keep monthly or quarterly statements until you receive the annual summary and then shred.  Keep the annual statements to track contributions and distributions, along with IRS Forms 5498, 1099-R, and 8606.  It is up to the individual to keep track of all nondeductible contributions to their IRAs and to pro-rate this amount across all IRA distributions come tax-time, as financial institutions are not required to perform this calculation. 
   
• Credit Card Statements:  Keep until you have matched your receipts with your monthly statement and then shred.  The only reason to hold onto these any longer is if a statement is your only proof of a tax-related transaction, in which case you should file it with your tax records.  Otherwise it is best to destroy old statements as they can be a prime source of identity theft.
   
• Pay Stubs/W-2 Statements:  Hold paycheck stubs for one year until you have verified that they match up with your W-2, and then shred.  It is advised that you keep all W-2 statements until you begin receiving Social Security benefits to make sure your earnings record matches up with theirs.

INSURANCE

• Whole Life Insurance: It is recommended that you keep whole life policy information permanently.  Policies may still be in force many years after payments have ended, such as with paid-up insurance and extended term provisions.  At the very least, keep policies for three years after they have expired.
   
• Term Life Insurance: There is no need to keep paperwork on term policies after they expire.
   
• Home Insurance:  Hold onto policies after they expire if there was a claim, or the potential for a future claim on an old policy. If the claim was tax-related, keep documentation for at least seven years. Homeowners policies can also be useful for estate planning purposes when they can provide proof of value on an asset that one day might be pulled into the estate.  In this case, retain permanently.
   
• Auto Insurance: Shred old policies after they expire, unless there was an accident or potential for a future claim.

PERSONAL HEALTH

• Medical Expenses:  If you are able to claim medical expenses on your tax return, it is recommended that you keep the expense records for seven years from the end of the year in which they are claimed. 
   
• Medical Records:  Your and your family’s personal health records should be kept indefinitely and should include your medical history, copies of your prescriptions and/or treatments prescribed.
   
• Caregiver Contact Information:  Keep complete contact information for your physicians, medical suppliers, caregivers, etc.

HOUSEHOLD INFORMATION

• Mortgage Documents:  Keep all loan information for the duration that the mortgage is open.  After you’ve paid off the loan, the bank is obligated to record a satisfaction of mortgage.  Keep this document for as long as you own the home. 
   
• Home Repair Bills and Improvements to Real Estate:  Major improvements such as a new roof or windows can increase your basis in the property, so these receipts should be kept for the duration you own the home plus seven years past the date of sale.  Other home repair records should be kept for about ten years in case you need proof with regard to guarantees of workmanship.
   
• Utility Bills:  If you are writing off your utility bills for tax purposes, keep with your tax documents.  To establish residency for purposes of drivers licenses, voter registration, etc. you will typically need the last three months of bills. Otherwise, keep until your last payment has been processed correctly and then toss.
   
• Merchandise Receipts:  Keep receipts for big ticket items such as jewelry, appliances, furniture, and automobiles in a safe place for proof of their value in case of loss or damage.
   
• Automobile Records:  Bill of sale, title, maintenance and repair records, etc. should all be kept for as long as you own the car plus one year after it is sold.