We provided a checklist for getting your financial paperwork organized in another blog post. Now that you know what kinds of paperwork you should be holding on to, the next question is how long do you need to keep it? Below are some guidelines for how long you should keep copies of each type of paperwork you have.
Tax Returns (including receipts and supporting documentation): The IRS has up to three years to audit you after you’ve filed a return. However, they can also challenge your return for up to six years if they suspect you’ve under-reported your income by 25% or more. To be safe, you should keep your tax paperwork for six years.
Pay Stubs and Form W-2: You should keep your pay stubs until you receive your W-2 for the year. Once you receive your W-2 and confirm the earnings on the W-2 match your pay stubs, you can then destroy the pay stubs. You should keep your W-2’s until you start receiving Social Security benefits. The reason for this is that the W-2 is usually your best proof of earnings for Social Security in the event there are any discrepancies.
Bank Statements, Check Copies (if you have them), and Credit Card Statements: Bank statements and check copies should be kept on file for seven years. As noted earlier, it’s possible you can be audited by the IRS for up to six years, and these documents can be helpful if you are audited. Many banks offer online statements. If you receive online statements, make sure you save a .pdf copy to your electronic files. You only need to keep your credit card statements until you’ve confirmed the transactions were processed correctly, and you have proof the charges were paid.
When the time period for keeping a copy of each of these documents has passed, make sure to destroy them by using a shredder. If you don’t already own a shredding machine, one can be purchased relatively cheaply (compared to the cost of having your identity stolen) at your local Wal-Mart or office supply store.
Once you have all of your financial paperwork organized, you should create a Master List of where everything is located for your spouse, executor, and heirs in the event of your death. This list should be kept in your home files, on your computer filing system, and in a safe deposit box if you have one. Finally, it’s a good idea to photocopy everything in your wallet in the event you have to replace them. These items include your driver’s license, ID cards, health insurance card, and credit cards. Make sure to make a copy of the front and back so that you have all the account information and contact numbers.
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John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.