How Long to Keep Financial Records

Do you often find yourself wondering, "how long should I keep my financial records?” With tax season behind you, you might be feeling like cleaning out old documents.

Can you toss those tax documents from four years ago now that you’ve filed your 2021 return? Should you keep information from your insurance company even though your teenager now has their own policy? Alex Cummings, SouthState’s Information Security Awareness Program Manager, put together a primer on how long to keep common financial documents.
 

What is a financial record?

A financial record can be anything with your personal or financial information listed.

For a young adult, financial documents might include pay stubs from a part-time job, credit card receipts and a renter’s policy required by their landlord. Their grandparent’s financial records may look more like a long-term care policy, property tax bill on their second home and paper bank statements for balancing their checkbook by hand.
 

How long should you keep tax returns?

When filing taxes, records such as receipts, canceled checks, and other documents that reference income, a deduction, or a credit should be kept.

For the majority of cases, the IRS recommends keeping income tax returns and supporting documents for 3 to 7 years. This timeframe fits the period of limitations for most tax assessment and refund claims. Because each situation is different and how long you should retain records is fact dependent, we suggest you spend some time reviewing examples and additional helpful information included on the IRS recordkeeping page. If you have questions about your tax situation, reach out to a CPA or tax professional.
 

How long should you keep bank or credit card statements?

If you haven’t signed up for e-Statements, your monthly bank and credit card statements can pile up quickly. When is it OK to throw financial statements away? The list below explains a few scenarios:

• 1 year – Keep your statements for one year if you’re trying to track your spending or improve your budgeting. An entire year gives you the chance to see trends in your expenses in different seasons and around spending holidays.
• 3 years – If you need to support tax claims or deductions, it’s a good idea to keep records for a minimum of three years in line with IRS guidelines.
• 60-90 days – For credit card statements, 60 to 90 days is a good rule of thumb. Federal law and applicable regulations requires creditors to give consumers 60 days from when a billing statement is sent to challenge certain charges. These statements will come in handy if someone makes unauthorized purchases with your card, if a merchant charges an incorrect amount, or if you don’t receive goods or services paid for with your card. The creditor must resolve the dispute within two billing cycles (but not more than 90 days) after getting your letter, per the Federal Trade Commission (FTC).

How long should you keep utility bills?

Water, sewer, electricity, natural gas and internet – monthly bills can stack up in your bank account and on your kitchen countertop.

You should always discuss these matters with your tax professional but, generally speaking, self-employed individuals should hang onto bills for a year for tax purposes. You can also request an annual summary from your utility provider during tax season.

For most, you can dispose of your utility bill once you see that your payment has cleared, and the amount is correct.
 

How long should you keep insurance policies?

Most people have more than one insurance policy to keep up with, whether for their home, rental, car or boat.

Talk to your insurance carrier to make sure you understand what you need to retain and for how long. In most cases, it’s smart to hang on to all relevant insurance documents until you get a new policy. For car insurance, most states accept electronic versions of your insurance card. For convenience, you can keep the paper card in your glove compartment or wallet.

For some life events, such as applying for a passport, you’ll need the original version of certain documents. It’s a good idea to keep these items stored in a secure, weatherproof or fireproof location. If you have children, you may want to let them know where to find these important documents in the event of death or accident. You can also scan documents and store them in your cloud drive of choice.

For those that don’t have some of these important documents yet, financial or estate planning might be a good next step.
 

How long do financial records stay on your credit report?

You may be wondering how long certain negative items will affect your credit. Did you have financial hardship but are now wanting to purchase a home? Will your credit score reflect only recent activity, or will previous late payments still show up?

According to the Consumer Financial Protection Bureau (CFPB), the magic number is 7. You can read more about that on their website here.

Credit reporting companies typically cap theirs report at 7 years. Information about a lawsuit or a judgment is available for 7 years or until the statute of limitations runs out, whichever is longer. In the case of bankruptcy, your credit report may include the bankruptcy for up to 10 years.

The CFPB does caution that credit reporting companies will go back farther than 7 years if you’re applying for a job that pays more than $75,000 a year or for more than $150,000 worth of credit or life insurance. You cannot change negative items on your credit report unless there is an error. Beware of companies charging a fee to “fix” your credit history. Make sure you understand what the company agrees to do in return for payment.
 

How do I dispose of financial documents safely?

After you’ve sorted your documents and decided what to dispose of, what is a safe way to ensure sensitive information included on those files doesn’t end up in the wrong hands.

One method is to simply shred them. You can purchase a shredder for your home or, if you have a large amount of documents, look into a professional shredding service. Retail stores including The UPS Store and Office Depot offer this service. Local municipalities also hold free paper shredding days for residents.

Other methods of disposing of paper waste are to burn the pages, add them to a compost pile or pulping the paper by soaking them in water for 24 hours. Another quick way is to cover the personal information with an identity protection stamp.

If financial records stacking up has you feeling overwhelmed, choose a day each month or every other month to sit down and sort them into “file” or “shred” piles. Looking over bills and statements on a regular basis will keep things fresh in your mind and may help you avoid late fees.

About the Author: Alex Cummings is the Information Security Awareness Program Manager for SouthState, overseeing information security training and communication. He’s been with the bank for 4 years. He studied computer information systems at the University of South Carolina, where he started the Cyber Security Club and was recognized in several regional and national competitions.