Which Records Should You Keep and Which Can You Ditch?
By David Bach
April 19, 2010
Your taxes are filed, your return is on it's way—and now you're left with a box full of bills, receipts and who knows what. Financial expert David Bach helps you purge what you don't need with an excerpt of his new book Start Over, Finish Rich. Read more by downloading your free copy of Chapter 2.
The reason I made the FinishRich File Folder System so specific is that many of us keep too much information for way too long. (I'm guilty of this myself.) The fact is, except in cases involving fraud, the statute of limitations on income-tax returns is only three years, so the Internal Revenue Service does not expect you to hang on to tax records and receipts for any longer than that. The main exceptions to this are if you've underreported your income (in which case you should keep your records for six years) or have claimed a loss from worthless securities (seven years).
Obviously, you should keep records documenting the cost basis of your home and all your other taxable investments for as long as you own them. The same goes for the basic documents concerning your retirement accounts and insurance policies, not to mention all loans and mortgages.
But don't be shy about getting rid of old materials. Here's a list of items you should consider throwing away (or shredding if the documents contain personal information):
Outdated instruction manuals
Outdated wills or trusts (provided you created a new one)
Canceled insurance policies
Credit card statements for closed tax years
Canceled checks for closed tax years
Old brokerage statements for closed tax years (unless they have cost-basis information you might eventually need)
Old annual reports from stocks and/or mutual funds
Old investment newsletters (some people keep these things for years because they paid for them—let them go)