To be frank today’s topic is a bit dry. It’s also incredibly important and often overlooked. So, let’s see if we can make a post about record retention entertaining. Well I’m going to try to make this topic more entertaining by first comparing it to something even more dull. Man, am I glutton for punishment or what? So, what am I going to compare it too? Queuing theory.
What is Queuing theory?
Queuing Theory is an incredibly important mathematical study of how we wait in lines. What could be more entertaining? And yet, design of queues plays a major part in our lives. From how we navigate traffic, to our waits at the grocery store, and even to how goods and services are produced. So, while it may be as dull as the plaster on my walls it’s critical that someone design with an eye towards queuing.
In the same way record retention is important. There are so many other things in life I’d rather do then file paperwork, but it’s better than the alternative of not having done so where you might be royally compromised. Then again there is also such a thing as too much of a good thing. If you have your bank slips from the 5th grade and your now 30 it’s probably about time to become a bit more record minimalist. There is a healthy medium. Now that I’ve bored you with Queuing theory let’s take you to the comparatively exciting world of record retention
Short Holding Period Record Retention
- Credit Card Receipts – Hold these until your next credit card bill. They’ll allow you to contest the bill if need be. Once your bill comes and the records match there is no need to continue to hold them. An exception to this rule is sometimes a warranty will require an original receipt. Just remember to toss them when it expires. Credit Card Receipts rack up quick at my house, If I kept them more than a month I could probably replace that wall paper with bits of cash register paper. Wouldn’t that be a sight?
- Bank Deposit Receipts – I recommend holding these until the next statement you get. It’s always good to have a non-online copy of what is in your accounts in case of security breach or another bank issue.
- Utility Bills – Keep these until the next bill unless you are using them as part of a tax write-off. If you need them for tax purposes you should keep them for the standard tax auditing timeline of 3 years. Otherwise ensuring they denote paid in full one month to the next is sufficient.
- Bank Statements – At the next billing cycle you should be good. Just long enough to ensure there are no mistakes between each statement. Beyond that these days banks have decently accessible records so you really shouldn’t need to keep these for too long.
- Receipt for the Return of Utility Equipment – Comcast has tried to burn us more than once on this. Yes, we returned your cable modem, and I have the receipt to Prove It! Hold onto it for a few billing cycles.
Medium Holding Period Record Retention
- Brokerage Purchase Statements – Recent Rules have made this one more manageable. A few years ago, you really needed to keep ahold of when you purchased a stock and at what price essentially forever. Starting in 2008 brokerages are now supposed to include this information. if they have it, on your tax documents at sale. Still you may want to keep a copy if you move your money between brokerages, have older holdings, or in general in case your brokerage makes a mistake. The choice is yours.
- Medical Bills – You should keep these for 3 years in case of Audit when using for HSA or other tax-deductible purposes.
- Anything Else you are Reporting for Tax Purposes – Just like the medical records, keep them at least 3 years in case you get audited.
- Records of Paid off Loans – Keep these for 7 years until they drop off your credit report. There is nothing like a zombie bill that comes back after you’ve paid it off.
- Legal Documents – You should keep a copy of any legal documents for as long as they are in effect. This would include contracts, insurance plans, property records, pension plans, and Anything else where there is a legally binding agreement that you may someday need to exercise.
- Home Improvement Records – The first 500K of capital appreciation on your home is tax deductible. After that you must pay taxes. For that reason, you should keep receipts of all major home improvements as it will increase your basis, decreasing your appreciation for tax purposes. Dump them 3 years after you sell the home.
Forever Holding Period Record Retention
- Taxes – I know what you are thinking here. Technically the IRS can only audit you up to 3 years from the date of filing. They even note on their website 3 years is acceptable. The thing is, there are a bunch of exceptions. The one that stands out to me is: Keep records indefinitely if you file a fraudulent return. The question that always sticks in my mind, if you tossed your return how exactly would you prove it wasn’t fraudulent?
- Birth/Death/Marriage/Adoption and other Vital Records Documents – The documents are needed in perpetuity. Any time you need to change records with the state or other significant changes you will probably need one or many of these documents. You’ll pay for the privilege of getting a replacement so you really should keep a copy in a fire box forever.
- Wills – This almost goes without saying, if you do not have a copy of your Will how is anyone going to find it when you are gone?
- Home Title Insurance – Keep this insurance until you sell your home or forever, whichever comes first.
- Record of Paid Off Mortgage – Scary enough during the financial crisis some poorly managed companies tried to foreclose on people’s houses that had no existing mortgage. Keep a copy of your paid off mortgage forever! Or at least until you sell your home.
Anything I missed? Any holding periods you disagree with? More importantly, do you think Comcast has found an alternate revenue stream in double collecting for returned cable modems?
One other reason for keeping tax documents forever: I just read a post by a person filing for social security. He found one year, in the middle of his career, where his income was listed as zero. The SSA wanted him to produce his W2 (among other documentation) for that year, as there is no cross-reference to any systems to retrieve the information. After waiting some months for his in-person appointment, a manual records update was made.
Of course, you could avoid this by checking your SS records regularly. But since the SSA stopped sending paper statements periodically, this depends on your own discipline to do.
Great point I hadn’t thought of, that would be an expensive mistake.
“Now that I’ve bored you with Queuing theory let’s take you to the comparatively exciting world of record retention.”
Lol , thank you for this. I thought it was going to be more data heavy because “queuing theory” has that sound. Didn’t realize it was about wait times and storing of documents lolololol.
Nice short article 🙂
Glad you liked it and thanks for commenting.