It could be a very good year for one lucky winner of the fourth biggest jackpot in Mega Millions history.
And yet, starting 2023 with $785 million could be a downside.
“The curse of lottery losers is very real,” said Andrew Stoltman, a Chicago-based attorney who has represented several recent lottery winners.
one of many first decision Stoltman said that a winner – whether to accept the jackpot as a lump sum or as an annuity – must often be their downfall.
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If You Choose, the jackpot for Tuesday night’s drawing is the fourth largest lottery prize ever at an estimated $785 million. Take your windfall profits in the form of annuity Spread over three decades. The upfront cash option – which most jackpot winners choose – is $403.8 million for this drawing as of Tuesday afternoon.
These days, the annuity option relative to the cash option is bigger than ever, thanks to high interest ratesWhich makes it possible for the game to fund large annual prizes, according to the Multi-State Lottery Association.
Still, “more than 90% of winners take an immediate lump sum,” Stoltman said. “That’s usually a big mistake.”
Not only does an annuity Offer a Big Bang for Your BuckBut according to Stoltman, splitting the payments also gives you an opportunity to build an experienced team, including an accountant, financial advisor and an attorney, to protect the money and your best interests.
“Few lottery winners have the infrastructure to manage lottery windfalls,” he said.
This ensures a level of financial security that is not lumpy, even with the inevitable onslaught of requests, excessive purchases or bad investments.
Stoltman said, “If the winner is going to get paid for another 29 years, then making a mistake in winning the first year is not catastrophic.”
Analyzing Annuity Payments Versus Lump Sum Payments
Spreading out the payments is a worthwhile idea, “especially in light of math and psychology,” said Joe Buhrman, a certified financial planner and senior financial planning advisor at Fidelity’s eMoney Advisor.
“Even if you spend it in full, there’s another check that comes next year,” he said. “There’s a lot of certainty in that.”
then there are tax consequences: Choose the cash option and the 24% federal tax withholding is removed from the top – that’s roughly $96.9 million – with the prospect of another hefty bill coming due at tax time,
“The only deduction you have is the cost of your ticket,” Buhrman said.
Of course, you’ll pay taxes on the annuity check as well, but probably not as much on the investment income if the government is doing the work for you (essentially investing how you would by putting the winnings into a portfolio of bonds).
Although you can earn more by investing in the market over the same time horizon, there is much less risk involved as the annuity payments are guaranteed. even if you dieFuture payments become part of your asset just like any other asset.
“Don’t get caught up in nickels and dimes,” says Susan Bradley, a CFP and founder of the Sudden Money Institute in Palm Beach Gardens, Florida.
Either way, “the payout is huge and you’ll never be the same again,” she said.