This article was originally published in February 2020. It was updated in February 2022, to reflect new recommendations for document retention and new information about digital record-keeping.
This summer my husband and I drove 700 miles with our two dogs to my in-laws’ house in eastern Long Island. Once we arrived, we continued this test of marriage by spending three days cleaning out their musty basement that they no longer use.
Over time, we all seem to accumulate unwanted clothes and household goods, particularly if we have space, and nooks and crannies we can shove these things into; we close a door and pretend they’re no longer there. Because well, one day, maybe, we’ll want something in that pile again, right? Although there are days my husband probably thinks he lives with a professional organizer, I’m not about to provide you with tips for organizing your physical things. Rather, I’d like to help free you, like my mother-in-law, of the 10, 20, maybe 50 years’ worth of paper you may be accumulating in your house.
You see, before we could even get to the household goods, we waded through nine huge trash bags full of old bills, tax records, and bank statements…one painstaking piece of paper at a time. We, like you, wanted to make sure we were not discarding anything important that might be in the middle of just one of those stacks. This was my mother-in-law’s filing system for decades: unsure what to keep or throw away, she kept everything! And if asked, “Do you have a copy of that bank statement?” she could always answer honestly, “Yes, and good luck finding it!” (but in her own version of broken-Italian-English).
Below is a chart to help you organize your files. We think each year, just after you file your taxes, is the perfect time to refresh your files and purge what is no longer needed:
How long to Keep
Investment Performance Reports
Discard once you receive the next one.
Discard once you receive the next one.
Discard once paid UNLESS you’re deducting medical expenses on your tax return. If you’re deducting expenses then keep for 7 years with your tax records.
Discard as soon as you balance your checkbook or at the end of the month.
Credit Card Statements
Keep until you confirm the charges and have proof of payment.
For anything you deduct on your tax return, keep for 7 years with your tax records. All others can be thrown away after you’ve consumed the item, it is no longer returnable, or the warranty has expired.
1 year or until you’ve completed the tax return for that year
Investment Account Statements
1 year or until you’ve completed the tax return for that year For any investments owned prior to 2012, it is your responsibility to provide proof of the cost basis when the investment is sold. Keep year-end statements (digital is fine) for any investments owned prior to 2012 and not yet sold. After 2012, the proof of cost basis is the burden of the financial institution holding the asset.
1year, until you receive your final W-2 for the year and have reconciled it
Income Tax Returns and Supporting Documents
7 years from the date you paid the tax You can be audited by the IRS for up to 7 years if they find there is a substantial misstatement of income on a return, or 3 years for any other return. The IRS will accept digital forms of the returns and supporting documents so feel free to rid yourself of the paper if you are confident you have and can keep the digital records.
Other Tax Returns: Gift Tax Form 709, Estate Tax Forms 706 and 8971
Keep these in your permanent file. Digital records are acceptable as long as they are complete.
IRA Distribution Forms 8606, Retirement Plan Distribution Forms 1099-R
Keep until all distributions have been made from the IRA in case after-tax distributions need to be reconciled. Digital records are acceptable.
Form W-2s for wage income
Keep until you begin to collect social security in case you need it for proof of any error in your work history records to maximize benefits. Digital records are acceptable.
If you have homes in multiple states and need to demonstrate residency in one state for income tax purposes, keep travel receipts and itineraries with those tax returns for proof.
Records Showing Improvements to Real Property (your home)
Keep until the house is sold. Records can be used when selling your home to offset capital gains after the sale.
Insurance Documents; Property Records, Deeds, or Titles; Stock Certificates
Keep while these items are active. Once the contracts are completed or expired, they can be discarded.
Documentation of Major Loans (home, student, cars, home equity line, etc.)
Keep payoff statements forever. Keep along with promissory notes and related documents in safe deposit box or fire proof safe.
Marriage License, Birth Certificate, Wills, Adoption Papers, Death Certificate, Divorce Decree, Records of Paid Mortgages
KEEP FOREVER. These should be kept in a very safe place like a safe deposit box or fire proof safe.
College transcripts and higher education records (certificates, degrees, etc.): Generally not necessary to keep as they can be ordered from the institution if needed.
Military discharge papers: Retain with other legal documents to prove future eligibility of veterans’ benefits.
Employer non-compete agreements or other contracts: Keep as long as you are employed by that employer and for as long after as the contract is binding.
Most bills and statements can be accessed online so there’s no need to keep them once they’ve been paid or reviewed. If you do need to retain them, download the files and save them with related documents. If you’re not comfortable relying on virtual documents, keep the paper copies until the next bill comes in, then throw out the previous copy. If you insist on keeping a more complete record, simply keep the last annual bill or statement for your records.
As you can see from the checklist, many documents can be retained digitally. So how do you convert paper files into digital files so you can clean out more of the clutter? A desktop scanner is always a good option but now there are apps for your smartphone or tablet that allow you to easily scan documents. Check out Adobe Scan (free!), Microsoft Office Lens, or SwiftScan to name just a few.
Organization, like eating healthy or staying fit, is not a one-time thing. In order for it to stick, it must become a way of thinking. I hope that with these tips, the next time you receive a bank statement or bill in the mail, you will think twice about adding it to an ever growing pile of paper to be filed and instead give some thought to tossing it in the pile of paper to be shredded.
If it makes you feel just a little better, after going through all those bags of paper at my mother-in-law’s house, we did find a few gems— including my grandmother-in-law’s and mother-in-law’s immigration certificates from 1963!—and one very important document: my grandmother-in-law’s will which no one living knew existed.