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How Long Should You Keep Records of Investments and Other Financial Documents?

Barbara Marquand | guest writer for GoTalkMoney

If your closets and file cabinets are overflowing with financial documents that date back to the days before DVDs, iPods, and the World Wide Web, then it's time to sort through and perhaps do some serious shredding.

Whether you're a pack rat or a merely an overly conscientious record keeper, chances are you holding on to stuff you don't need, which, besides taking up space, makes it difficult to find the papers that really do count, such as backup for taxes and proof that you made payments.

That said, you don't want to go overboard. Although brokerages, banks and credit card companies maintain online versions of statements, the institutions vary in how long they keep them, and it's a good idea to store your own records for as long as you need them.

Here's a rundown on some of the key financial records you should keep and for how long:

Tax Records

What about all those receipts, W-2 forms and bank statements for backing up your tax returns? The guideline for how long you should keep tax records depends on what you're trying to prove and how that relates to the period of limitations -- the time in which you can amend your return or the IRS can assess additional tax. For good-faith errors, the period is three years after you file your taxes. But the limitation goes up to six years if you fail to report 25 percent or more of your income and seven years if you claim a loss from worthless securities or bad debt deduction. The limitation period is indefinite for fraud or failing to file a tax return, but assuming you've done neither of those and your records are squeaky clean, you're safe if you keep them three years. Keep them seven years to be iron-clad safe.

Utility Bills and Credit Card Statements

Unless you need them to claim deductions for tax purposes, you don't need to hang on to these bills once you've gotten the next statements showing your payment has been credited.

Home Purchase and Improvement Documents

Hang onto records showing how much you've invested in your home, both in the purchase as well as home improvements and any expenses related to the sale of the home. Money you paid to improve and sell the home will lower your profit for tax purposes. Once that gain or loss is reported on your taxes, you'll need to keep the records another seven years.

Checking Account and Savings Account Statements

Unless you're self-employed and need to show proof of income, most experts say you don't need to keep monthly bank statements for longer than a year. Of course if you're in the middle of a dispute, keep the statements until the problem is resolved.

Loans

Keep loan documents and statements until you've paid off the loan, and then just keep the document showing you paid in full.

Brokerage Statements for Investments

Keep the records showing how much you paid for the investments, including fees and commissions and any reinvestment of dividends, which you'll use for figuring your capital gain or loss when you sell the investments. It's a good idea to save end-of-year statements, but you don't need the monthly statements, unless they show purchases.

Retirement Accounts

Keep records of contributions and withdrawals from retirement accounts indefinitely. You'll need proof that you already paid taxes on any non-deductible contributions you make. Keep your annual retirement account statements until you retire.

Pay Stubs

Keep them for a year and make sure they match up with your annual W-2 your employer sends at tax time. After that you can shred them.

Consider getting a safe deposit box to keep vital documents, such as savings bonds, a certificate of deposit, deeds, leases, car titles, birth certificates, copies of wills and others you don't want to lose.

Talk to your financial advisor if you're in doubt about what to keep or toss out, and don't forget to shred any documents with your personal financial information before trashing them.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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