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Shred or Save? A Quick Guide to Document Management Thumbnail

Shred or Save? A Quick Guide to Document Management

It’s easy to throw up your hands in exasperation when sorting through personal documents – you may be tempted to shred everything (or keep it all!) and be done with it. However, keeping good records can reduce clutter and help protect your personal information. 

Let’s break down what you should shred immediately, what you should keep for a few years, and what should be safeguarded forever.

Documents to Shred Immediately

  • ATM receipts and reconciled paper bank statements
  • Old credit card bills (after charges have been verified)
  • Paid utility bills (keep latest copy if needed for proof of residency)
  • Expired warranties
  • Canceled and voided checks
  • Store receipts (after the return period is over)
  • Any statement with your credit card number, social security number, phone number, or other personal information

Documents to Keep for One Year

  • Current medical bills and insurance statements - for Medicare, keep the four most recent quarterly Summary Notices
  • Investment account statements: it's not necessary to retain paper statements if  online statements are available (as is the case with Schwab and Fidelity). While some may opt to keep an end-of-year summary statement, once a 1099 is received, these statements become redundant and can be safely discarded. See note below re: retaining cost basis information for securities purchased pre-2012

Documents to Keep for Seven Years

  • Paperwork related to an estate settlement or a loved one’s death
  • Tax returns: the IRS has three years for an audit, which can be extended to six years if an investigation is warranted1

Documents to Keep Until Property Is Sold

  • Documents related to tangible assets like real estate and automobiles, including deeds, titles, settlement statements, lease documents, and bills of sale
  • Documentation of expenditures for substantial improvements to real estate, in order to substantiate cost basis at the time of sale
  • Documentation for investments purchased prior to 2012, as the investor is responsible for maintaining cost basis records for pre-2012 purchases (and properly reporting to the IRS when sold)
  • Stock and bond certificates
  • Home repair receipts
  • Major purchases with a warranty (i.e. appliances)

Documents to Keep Indefinitely

  • Legal records
  • Birth certificates
  • Social security cards
  • Marriage licenses/certificates, prenuptial agreements 
  • Divorce decrees and separation agreements
  • Death certificates
  • Wills, Trust documents, General and Healthcare Powers of Attorney, Living Wills
  • Passports
  • Insurance policy documents (including homeowner, auto, health, disability, long term care and life) should be retained for all current insurance policies
  • Important medical records such as hospital discharge papers, test results and immunization records
  • Mortgage documents
  • Select tax documentation, such as tax filings associated with taxable gifts or an inheritance, non-deductible IRA contributions and IRA Roth conversions
  • Military discharge papers should be kept in order to prove eligibility for veteran’s benefits

Storing Documents: Digital v. Hard Copies

While the IRS has clarified that digital copies of tax returns and supporting documentation are generally acceptable, certain records should be kept as hard copies. These include birth, death and marriage certificates, social security cards, mortgage documents, the most current passport, military discharge papers and legal documents (unless the original documents were legally “e-signed”). For most other documents, including tax records, a secure digital copy suffices.

Once you know what documents to shred and systematically file the rest, you’ll be ready to file taxes, manage your budget, and easily locate the required papers in case of legal actions or audits. 

  1.  There is no time limit for an IRS audit if a fraudulent return was filed, or if no return was filed.

This content is developed from sources believed to be providing accurate information as of the date of publication, and is intended for informational purposes only. No content should  be construed as legal or tax advice. Please consult your financial professionals for specific information regarding your individual situation. Past performance does not guarantee future results. All investing involves risk, including risk of loss.