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How to boost your financial health with effective recordkeeping

Getting your financial records in order is a great idea, particularly at the beginning of a new year. As the saying goes, it’s “out with the old, in with the new.” That means purging old, outdated financial documents that create clutter while gathering records and tax documents from the previous year to help with income tax preparation.

Having a clear recordkeeping process can help you stay organized and financially healthy, but do you know which records to hold onto and for how long? Let’s look at a few timelines to keep in mind, as well as some thoughts on paper versus digital records.

Records to keep forever

You’ll want to hold onto a handful of important documents for the rest of your life. Keep originals in a secure place, such as a fireproof safe at home, and make sure someone else can access the documents in the event of your incapacity or death. These records include:

  • Birth, death and marriage certificates

  • Adoption records

  • Social Security cards

  • Passports

  • Divorce papers/child custody papers

  • Other name-change documents

  • Gift tax returns

  • Estate planning documents, such as wills, revocable and irrevocable trusts, powers of attorney and health care directives

  • Tax basis information on gifts or inheritance received from parents/others

  • Life insurance policies

  • Military discharge records

Records to keep long term

There are other documents that you may need to keep for a long time, though perhaps not forever. Many of these are asset purchase records, such as a settlement statement on the purchase of real estate or a title to real estate. Keep these until the asset is sold and the statute of limitations has passed on an income tax audit. This is typically three years after the tax return is due or the tax is paid, or longer if special situations apply.

Other similar documents include receipts for real estate improvements, titles to cars and other vehicles, and loan payoff statements and lien release statements. These should also be kept until any transaction is complete and the statute of limitations has passed on an income tax audit.

Finally, a handful of records should be kept through the lifespan of the document. This includes annuity contracts, student loan documents, warranties and leases. If a warranty or lease is extended, be sure to keep the original as well as any extension documentation until the agreement ends.

Tax returns

The IRS recommends keeping your income tax returns and tax records for at least three years after the filing date or whenever you paid the tax. Documents to hold onto include W-2s, 1099s, K-1s, charitable deduction confirmations, income from business interests and medical expenses.

There are situations that warrant keeping records longer. In some cases, such as if you file a fraudulent return or don’t file a return at all, the IRS recommends keeping records indefinitely. However, a good rule of thumb is to keep financial records for seven years. Most banks and financial institutions provide access to seven years’ worth of statements and transactions electronically for cash accounts, brokerage accounts and credit cards. To get records older than seven years from a financial institution, you may be charged a fee to receive those documents if they are still available.

If you have a special legal or tax situation, you should consult with your attorney, tax preparer or other advisors to discuss your recordkeeping needs.

Records to keep for one year or less

These are the documents that can easily create clutter if they’re kept too long. For instance, you may want to hold onto store receipts for as long as an item can be returned. But once that time has passed, or you’re sure you’re keeping the item, you can throw the receipts away. For bigger-ticket purchases such as appliances or furniture, you may want to hold onto your receipt until any warranties expire.

If you receive paper pay stubs from your employer, keep them until you receive your W-2 for the year. Once you have verified your W-2 is correct, the old paystubs can be shredded and tossed. Paper bills should be kept until payments clear your bank account. It’s also a good idea to keep at least one month’s worth of bills handy so you have easy access to your prior balances, account numbers and more.

Paper or digital records?

Most of us keep a combination of paper and digital records, and there isn’t really a “better” option between the two. The key is to save both types of records in a secure place and make sure a trusted person has access in the event of death or incapacity. This often goes overlooked with password-protected digital records, so make sure you have a plan in place to grant someone else access if needed.

When it comes to the types of records you should hold onto forever, it’s recommended to keep original versions, and these are often paper. The same is true for items such as vehicle or real estate titles. In many cases, digital records can be saved as backups to these paper originals.

If you prioritize security with both paper and digital records while following clear retention timelines, you’ll be on your way to having a strong recordkeeping process.

Paula Stumne

About Paula Stumne

Paula Stumne has served as a Wealth Advisor since 2022 and provides disciplined, high-quality investment management, wealth planning and trust administration customized for your unique goals. By building long-term client relationships based on prudence, responsibility and trust she helps individuals, families, foundations and other organizations establish and meet their financial goals. Before joining Bremer in 2022, Paula served as Senior Vice President and Trust Officer at Security Bank and Trust Co. She also spent several years practicing law as an estate planning attorney, and prior to that experience worked in the financial industry for ...

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