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IT’S EASY TO GET overwhelmed by the number of documents we receive over our lifetime. Paper copies take up space, and even electronic records necessitate computer storage. Either type requires a certain amount of time spent organizing.
The sheer volume makes the question of how long to retain records a perennial topic for newspapers, social media and podcasts. For instance, many folks have heard the advice that they should retain all documentation for seven years after they file their taxes. That’s sound advice when dealing with the IRS.
But there are reasons you might want to keep documents for more than seven years. The recent experiences of two friends illustrate why some records should be kept for far longer.
Tom—not his real name—was served with divorce papers after a long marriage. As he and his wife were working through the settlement, they were determining what assets they had acquired jointly and what each had brought to the marriage. Tom was trying to figure out the value of a 401(k) from 20 years ago, before they got married.
Over the past 20 years, the plan had three different administrators. None retained records from that era. I certainly can’t blame them. Each probably kept records for a few years, and then deleted them once they were no longer the plan’s administrator.
Tom was left to estimate the value of the 401(k) from decades ago. Unfortunately, his spouse had a different estimate. It took some emotionally draining meetings to reach an agreement.
Another friend—let’s call her Barbara—had once worked for a company and been there long enough to accrue a small pension. Every couple of years, she checked what the pension would pay upon retirement. Because Barbara’s salary and years of service were fixed once she left that employer, the estimate from the administrator never changed. Until this year.
Her old employer changed pension administrators. When Barbara checked on the pension amount, the new administrator gave an estimate that was one-third less than that of the previous pension administrator.
Barbara is now trying to gather records showing what she earned at that employer between 2002 and 2007, since those years of salary will determine the size of her pension. Unfortunately, she had thrown out her old W-2s and pay stubs because she had long ago filed taxes for those years.
My two friends’ experiences provide some justification for my habit of keeping many documents for far longer than seven years. Let’s face it: We never know when we might need some financial numbers from the distant past.
I work in the retirement industry, usually with employers, and am the kind of person who might be on the hunt for Tom’s old 401(k) papers. The conclusion I came to years ago regarding how long to keep records for defined benefit plans was…forever. It’s pretty much the same with defined contribution plans like 401(k)s. You don’t want some former employee asking for a payout, you know you paid him out 20 years ago, but you have no documentation of doing so.
I changed my tax CPA and I had very old records I had saved and the new one would had a way to set up the depreciation on a couple homes I had owned well over 10 years. Some things, tax records, I never toss.
Thanks for a good article on records retention. In my case, it’s a useful reminder to review what I’m keeping to ensure I’m not missing something.
Yep. Your article is a good summation as to why there’s no one right answer for everybody in regards to “how long we should store our documents” question.
As for your friends, “Tom”‘s only realistic option was locating an actual statement for his 401(k), which obviously didn’t happen. As for “Barbara”,she might try going to mySocialSecurity and download one of her earnings statements, and see if she can retrieve what she needs there. Unless it was a job in which she didn’t pay into Social Security, in which case that won’t help.