Ask the Experts: How long should I keep my financial records?

Ask the Experts: How long should I keep my financial records?

The answer depends on the type of financial record. Here’s a general guide:

Tax records — Most financial professionals recommend keeping your tax records for up to seven years. That’s because the IRS has three years from a tax return’s due date to challenge your return, and it has up to six years to challenge your return if you’ve underreported your income by 25% or more in a given year. The tax records you should keep include statements related to wages, deductions, dividend or interest income, capital gains or losses, and business profits. As for the actual tax returns, it’s a good idea to keep copies indefinitely.

Retirement records — You should keep year-end 401(k) account statements at least until you retire, along with any rollover paperwork. Similarly, you should hold on to records that detail your IRA contribution and withdrawal activity — year-end statements should suffice. Also, it’s recommended that you keep copies of tax forms related to your IRAs until all money is withdrawn from the accounts.

Investment records — When you purchase stocks, mutual funds, and other investments, you need to keep records relating to how much you paid (a figure referred to as your “cost basis”) so you can document the amount of your gain (or loss) when you sell the asset. You should also keep paperwork showing periodic purchases or the reinvestment of dividends related to the asset, if applicable (again, year-end statements should suffice). When you sell the investment, the records should be kept for up to seven years according to the rules above for tax records.

Home improvement records — If and when you sell your home, you’ll need to calculate the costs of any permanent home improvements that you’ve made for tax purposes. So make sure to keep copies of all work invoices and canceled checks related to your home.