Keeping your statements

February 27, 2015

Rumor has it that you should retain copies of your federal tax returns for 7 years. Is that true or is it just a myth? For how long should you keep the quarterly and annual statements you receive regarding your investment accounts? And, how long should you keep bank statements before tossing them?

Let’s begin with tax returns. The Internal Revenue Service urges you to keep federal tax returns until the period of limitations runs out – that is, the time frame that you have to claim a credit or refund, or the time frame in which the IRS can levy additional taxes on you. This is a good guideline for state returns as well.

If you file a claim for a credit or refund after you file your tax return, the IRS would like you to keep the relevant tax records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. If you claim a loss from worthless securities or bad debt deduction, you are advised to hang onto those records for 7 years.

If you filed a fraudulent return or no return, you should keep related/relevant documents for 7 years. The IRS also advises you to retain employment tax records for at least 4 years after the date that the tax becomes due or is paid – again, whichever is later.

Some tax and financial consultants advise people to keep their tax returns forever, but concede that canceled checks, receipts and other documents supplemental to returns can usually be safely discarded after 3 years. (The standard IRS audit goes back three years.)

Tax records relating to real property or “real assets” should be kept for as long as you hold the asset (and, for at least 7 years after you sell, exchange or liquidate the asset). These records can help you figure appreciation, depreciation, amortization or depletion of assets with regard to the property. You also might want to keep receipts and tax records related to major home improvements so that if you sell your home, you can show tomorrow’s buyer how much money you put into the house.

What about mutual fund statements? The annual statement is the one that counts. When you get your yearly statement, you can toss quarterly or monthly statements. You might want to quickly glance and make sure your annual statement truly reflects changes of the past four quarters.

You want to keep any records showing your original investment in a fund or a stock for capital gain or loss purposes. Your annual statement will show you the dividend or capital gains distribution from your fund or stock, as you may be reinvesting that money.

How about IRA and 401(k) statements? You get a new one each month or quarter; but how many do you really need? The annual statement is the most relevant. Additionally, you want to hang onto your Form 8606, Form 5498, and Form 1099-R.

Form 8606 is the one you use to report nondeductible contributions to traditional IRAs. Form 5498 is the one your IRA custodian sends to you. It is sometimes called the “IRA Contribution Information” or “Fair Market Value Information” form, and it usually arrives in May. It details a) contributions to your traditional or Roth IRA, and b) the fair-market value of that IRA at the end of the previous year. Form 1099-R is the one you get from your IRA custodian showing your withdrawals (income distributions).

Bank statements? The rule of thumb is 3 years; just in case you are audited. Some people shred them after a year or immediately, fearing that such information could be stolen. In certain cases, it may be wise to hang onto them longer; in the event of a divorce, for example. If someone tries to take you to court in the future or if a creditor comes knocking, you may want to refer to them. Your bank may provide you with archived statements online or on paper.

Credit card statements? You don’t need each and every monthly statement, but you may want to keep credit card statements that contain tax-related purchases for up to 7 years.

Mortgage statements? The really crucial records are most likely on file at the County Recorder’s office, but it is recommended that you retain your statements for up to 7 years after you sell or pay off the mortgaged property.

Life insurance? Keep policy information for the life of the policy, plus 3 years.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for the individual. Randy Neumann is a financial professional with and securities offered through LPL Financial, member FINRA/SIPC.