Spring Cleaning and Your Finances

Spring cleaning and decluttering is an annual ritual that some 80 percent of Americans undertake each year  – and we’d rather do that than our taxes, the same study says. But there’s no one-size-fits-all formula on what financial documents to keep and what to toss. 

The rule of thumb from many accountants and financial advisors is to keep most records for seven years – but there are some documents you should probably never get rid of.

“My general rule is seven years,” says Christy Woodward, CPA and senior tax advisor at MCF Advisors in Lexington, Kentucky. “And I can give you a little bit of a story behind that. Instead of telling people to keep these documents for three years, and these documents for six years, and these documents for seven or indefinitely, I just tell them seven years – one time frame.”

This approach makes it a bit easier to navigate varying timetables and circumstances: here’s as quick link to summarize.

Three years, six years….forever?

Woodward says if you file your 2025 taxes by April 15 of this year, the IRS can audit three years, until 2029. If you have unreported income, the IRS can go back six years. If you have not filed taxes, there is no statue of limitations.

“I tend to tell people let’s just stick with seven years on most documents,” she says. “And that would be receipts, bank statements, brokerage, statements – any kind of the backup to the tax return. You could probably throw all that away after seven years. There’s no hard and fast rule, but I just tend to lean on this seven-year rule, because that seems to cover most circumstances.”

Eric Bailey at Bailey Wealth Advisors in Silver Spring, Maryland, agrees with that seven-year rule – mostly.

Store for ten years?

“But for more important documents – wills, business agreements, LLC arrangements, even for some of your stock transactions, I would keep those at least 10 and store them digitally,” he says. “But make sure you download it to some kind of external drive, just in case your computer crashes or the cloud goes down.”

Bailey says people need to talk about digital assets as well – not necessarily currency or Bitcoin, but your digital assets or records. “So that if something happens to you in the future, family members in the future can access all that information, health care records as well as who your doctors are, and all those kinds of things.”

Got digital document overload?  Try taking Senior Planet’s 5-Day Spring Cleaning Challenge! 

Old Paperwork can be worth cash

Bailey had a client who had switched jobs several times. Bailey knew that one of those former employers had a pension plan that the client wasn’t aware or had forgotten about because they had not saved the records. “I won’t call it a nightmare, but it became an elongated process to identify what those assets were. And we found out they were due a pension, and it was roughly about $2,700 (monthly).”

Saving records digitally should make sense for most people because stacks of paper can easily become cumbersome. Also, most brokerages and investment banks keep digital records, so they may not be as critical for clients to keep them.

But there are records that you should keep permanently, such as when you buy your home or start a business.

Bailey says he creates a new balance sheet for his clients each year – so those without financial advisors should do the same. “I would suggest that they compile each year a financial statement that just lists all of their assets with account numbers and phone numbers,” he says. “And this is more for their heirs than for them. But even for them, just having the phone number and the account number available, they are more easily able to track it down.”

Woodward, meanwhile, says for people who have not kept records, she doesn’t necessarily recommend going back and trying to re-create seven years of records. Just begin now and be diligent.

“What we tend to see is most people hold on to too much stuff versus getting rid of it,” she says. “Most people are just drowning in paperwork.”

YOUR TURN

How long do you hold onto your financial paperwork?  Share your experience in the comments!

 

 

Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also author of the book “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com

 

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