How long should you keep important documents?

A surprising amount of paperwork chronicles every aspect of our lives. From lease agreements and wills to credit card statements and tax forms, there is a wide range of documentation. And as your financial life gets more complex, from homeownership to investments, it can be a challenge to know how long to keep specific documents and the correct way to dispose of them.

How to maintain your financial records

Good record-keeping can be thought of as a three-tiered approach. The first tier of documents should be held for shorter periods of time, ranging from a month to a year. The second tier should be kept for a minimum of a year in the event that there is a dispute, a legal agreement to be reviewed, or the item is under warranty. The final tier of documents should be held onto forever.

The Internal Revenue Service provides some guidance on the suggested duration that records should be kept in case of an audit.

Keep for One Year or Less

There are a number of transactions that generate records related to your finances, services used or products purchased. Those records could be a payment receipt, a change in account status, or even updated terms of service.

The following are examples of records that require short-term storage and can be disposed of after the transaction is completed and you've determined there are no issues with the product or service.

• Monthly subscription payments
• Utility statements such as your electric bill
• Purchase receipts for items or services that you don't plan to return or dispute
• Monthly bank statements—Banks typically keep these records available for five years or more, but if you'd like to retain copies for easy reference, one year is the general recommendation.

Keep For at least One Year 

There is a broad range of documentation that should be held onto for at least a year. These are transactions that may be disputed, connected to a warranty, or tax-related.

If you're unsure how long to keep a document, it's better to save it than dispose of it.

• Paycheck stubs—While most people receive electronic copies of their pay stubs, some still receive hard copies. Once you receive your W-2 and confirm that you've been paid correctly for the year, you can dispose of your pay stubs for the year.
• Tax returns—The IRS strongly encourages taxpayers to hold on to tax records for seven years. This guidance is given in the event that a tax return is audited, information is disputed, and for peace of mind.
• Purchase receipts for big-ticket items—If you've recently purchased an appliance, car or other high-dollar product, proof of those transactions should be kept for as long as you have the item.

Keep For Life

Some documents should never be disposed of, and because of that, they should be stored in a secure location separate from your daily comings and goings. (In other words, don't keep them in your wallet.) Replacing them can be difficult, and you run the risk of identity theft if they're stolen.

• Birth certificate—Never dispose of your original proof of birth; it proves your identity and age.
• Passports—Hold onto all passports, even the expired ones. Passports provide proof of citizenship and often serve as required travel documents. In the event that you need to replace it, having an expired passport may be a helpful resource to validate your claim.
• Social Security Card—This will be a required document to collect government benefits, qualify for a job and be used as identification throughout your life.
• Marriage licenses, death certificates, and divorce decrees.

There are additional documents that should be kept for your lifetime, such as proof of adoption, a will, or military records.

How to keep your documents and records secure

Once you've established a system for how long to keep your documents, it's important to consider how to safely store those records.

• Secured Cloud Storage—Scan or photograph documents and store them in the cloud. You may already have access to Google Drive or Microsoft OneDrive, cloud-based services that many consumers are familiar with. You may also consider paying for cloud storage that provides additional security measures.
• Physical storage—Even if you've taken a picture of a document, you still want to store the hard copy. Be mindful to use a fireproof and waterproof cabinet and store it in a safe space. For documents that you need to grab during an emergency, an easy-to-carry lockbox may be a useful part of your document storage practice. If you prefer to store important items outside your home, a safe deposit box is another option.
• Proper disposal—The last step to take when focusing on proactive document maintenance is the safe disposal of your documents. Consider switching to all paperless statements and documents, but for physical documents look for free community shred events in your area or invest in a paper shredder to destroy documents you no longer need. 

Designing a simple strategy to maintain your documents is essential for protecting yourself from identity theft, spam attempts or other fraudulent activity related to information accessed via your personal records. Protect yourself so that you can minimize the risk of theft and other harmful activity.