Household allocation of windfall income has been a controversial topic since Friedman proposed the permanent income hypothesis. Release of retroactive pay checks to a group of university employees provided the opportunity for further investigation of this issue.Responses to a mail survey of these employees suggested that funds were evenly distributed among current expenses, outstanding debts, financial investments, and new expenditures. Reclassification of allocations as either consumption or savings indicated that somewhat over one‐third of allocations were to consumption and slightly less than two‐thirds were to savings. Discriminant analyses demonstrated that size of windfall was the most important discriminator with respect to type of allocation. The data have implications for policy regarding notification concerning a windfall distribution. It appears that quality of decision making may be improved by insuring that recipients are provided with some advance notice of an impending windf