Winning the lottery is everyoneâ€™s dream come true. Hitting the jackpot can mean quitting that dreaded job, buying your dream home, or traveling around the world. But many lottery winners have found out that it is not always that easy. If it you donâ€™t manage your winnings correctly, you might be surprised how quickly you can blow through that wad of cash. The first step in managing your new fortune is to know your Powerball payment options and to make the right choice for you.
Lottery winners who hit the big jackpot can select two different ways to receive their winnings. They can select to receive the money in one lump sum, or receive annuity payments from the lottery board. The choice you make depends on your circumstances at the time. If you are in need of a large sum of money fast, or believe you or a financial advisor can manage the lump sum payment, the best choice for you is to take your winnings all at once. One thing to remember about the lump sum payment, though, is that the advertised jackpot is not the same the actual sum you will receive. For instance, Powerball officials estimate for a jackpot of $100 million, they actually have a pool of $50 million available that they will pay out to the winner. In addition to receiving significantly less money that you may have imaged, federal, state, and local officials will tax you for the entire amount in the same year that you won the prize. While the rate of state and local taxes of course varies depending on where you live, you can expect to give around 30% of your winnings to the federal government, and then more for state and local taxes. You will still be left with an amount of money that is nothing to sneeze at, yet it will be far less than the $100 million or even $50 million you may have been spending in your head.
One other cautionary note about taking the lump sum payment: lottery officials report that many winners who go this route set up a yearly â€œsalaryâ€ for themselves out of their winnings. Down the line, this salary will fail to keep up with inflation, and, after having become accustomed to a certain lifestyle, past winners have reported frustration at the feeling of living on a fixed income, no matter how large that income is. If you are going to take the lump sum payment, it is advisable to invest the money with an experienced money manager so you are accruing a decent rate of interest.
Investing the money is exactly what taking the annuity payment option does for you. The lottery board will take the money in the jackpot (note that this money is the reduced amount and not the advertised amount) and invest it for you. You then receive the full amount, plus any interest earned, over the course of 30 years. Because the money is earning interest, depending on market circumstances, you could end up making significantly more off of your winnings than if you simply took the lump sum payment. This method of claiming you winnings has a tax advantage, because you will only pay taxes on the money you receive in a single year; you will not be forced to pay the taxes on the whole amount in one go.
Whichever option you choose, Powerball officials say it will take two weeks for you to be able to claim your prize. Remember to claim it within 90 days, or you may be out of luck!
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