What do you do with an extra $20K a year?

My Native American tribe has just begun issuing per capita payments totaling $20,000 per year. I am recently married and between my husband and myself, we are able to make ends meet and don’t need to use the extra funds to live. I wondered what was the most prudent way to invest/save/utilize this money. I am currently 35 and wonder how to turn this surplus income into a viable retirement fund for my family and me.

Keep in mind that we have basically no financial know-how between the two of us including how the stock market works, or even the different types of savings and investment plans that exist. Is this the type of situation where we should seek the advice of a financial advisor? And if so, how do you locate the most reputable financial advisors in your area?

Thank you so much, love you on WGN News.

Terry Says:  Well, thanks for writing, and for the compliment!  This is a windfall, and you’re wise to seek help.  You don’t say if you are working and contributing to a retirement plan.  For sure, you should maximize contributions to a retirement plan at work, or open an Individual Retirement Account ( just call 800-FIDELITY or 800-VANGUARD) and they will help you do that.  At your age, you can contribute $5,000 a year (assuming you earn that much), and they will recommend a couple of diversified mutual funds.

By the way, you need to ask the Tribe how these payments will be classified for tax purposes.  They will likely be considered some form of dividend or interest — but likely NOT “earned income”.  That means you can use the money to make an IRA contribution — but you have to have other earned income to be eligible to contribute.

And if income taxes are not being withheld from these checks, you will probably need to make a quarterly tax deposit!  That means you need a bit of help with your tax return.   Go to a professional tax preparer to get started.  You’ll be surprised at how much of this windfall goes in taxes!

I would recommend putting another $5,000 in a money market deposit account in a bank, and not taking any risk with it.  If these payments continue over the years, you will build up a nice nest-egg.  If there’s any money left over after IRA, savings, and taxes — leave it in your money market account for at least a year. That will take a lot of discipline! I would love to hear back from you then.

Now, I’m going to get into a couple of sensitive areas.  First, you say you are recently married, and I was wondering if you are planning to have children?  If so, you could take some of that money, perhaps $5,000 a year and open a 529 College Savings Account in your own name, for use by any future children you might have!  The money can grow tax-free to be used for education.  Fidelity or Vanguard could help you do that, as well.

Second, (and remember I co-authored the book The New Love Deal), it comes to mind that this is YOUR money (unless your spouse is also a tribal member and is receiving the payment).  I don’t know what arrangements you made before marriage about how you are going to handle money.  But there is such a thing as a post-nuptial agreement — one that he would sign, acknowledging that this is YOUR money — and not marital property.   I have all  good wishes for your marriage to work out wonderfully — but one of every two marriages fails!  I know you don’t want to think about that now — but better now than later!  Since you listen to me on WGN, you’re likely in the Chicago area.  You can contact my co-author of The New Love Deal,  attorney Gemma Allen at 312-853-3000.  (Believe me, I’m not trying to get business for her —  she has plenty!   But I know you can trust her advice.)

Perhaps you share a joint goal — such as saving for a house.   Then you can put some of that money in a joint account and buy a house in joint name.  Even if he doesn’t contribute a penny, putting money or assets in joint name will automatically give him a 50% share in the asset or money.  But at the very least, I’d suggest keeping the balance in your own name, protected inside a retirement account or 529 plan, so it is not considered a marital asset.