What should the sole winner of last night’s $754.6 million Powerball jackpot do today?
Sleep in? Quit your job? Maybe. But the most important thing is what not to do: don’t tell everyone.
The Powerball lottery jackpot ballooned to $754.6 million this year after going months with no winners. That is, until Monday night when one ticket sold in the state of Washington matched all six numbers to win the fifth largest jackpot in Powerball history, the ninth largest U.S. lottery prize ever, and the first of the new year.
Claiming that much money likely will draw taxes, grifters, and friends and family members, advisers say. All that attention means the first and most important piece of financial advice likely is what you should not do if you hold the winning ticket.
“Don’t shout your win from the rooftop,” Rob Burnette, financial and investment adviser at Outlook Financial Center in Troy, Ohio, said. “If you’re lucky enough to win the lottery, keep it quiet. Get organized and make a plan. Consider staying anonymous, if it’s a possibility.”
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What are the odds of winning?
The $754.6 million prize is for winners who choose the annuity option, paid annually over 30 years. Most winners opt for the cash option, which was $407.2 million. Those are both before taxes.
The single chance of matching all six numbers is 1 in 292.2 million. Powerball tickets – which cost $2 each – are sold in 45 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
Why shouldn’t you tell everyone?
“Scammers will even use the names and logos of legitimate lotteries to make their operation look credible,” Powerball said.
No representative of Powerball would ever contact you via email or social media to tell you that you’ve won a prize, unless you specifically entered an official lottery promotion or contest. Also, never accept a collect telephone call from someone claiming to be a lottery official. Legitimate lotteries do not call collect.
Also remember, “Do not send money! If you are asked to pay a fee to claim a prize, you are likely being scammed,” it said.
Don’t ever share your personal or financial information. Scammers may try to get this information from you by offering to wire “prize money” directly into your bank account, Powerball warns. And don’t ever agree to cash a lottery ticket for a stranger.
Steve Azoury, owner of Azoury Financial in Troy, Michigan, said he has advised many lottery winners, including a $181 million winner “who said ‘If I didn’t know you before, I don’t want to know you now.’”
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If you can’t tell everyone you won, what can, or should you do?
“Get a tax attorney and a tax accountant right off the bat and then a financial adviser,” said Azoury. “They’ll work hand in hand to figure out the plan.”
The plan will include which payout option to choose:
- An annuity option makes an initial annual payment followed by 29 annual payments. Each payment is 5% larger than the previous one.
- The cash option is a one-time, lump-sum payment equal to all the cash in the Powerball jackpot prize pool.
The plan also should include a “fall guy,” Azoury said. “That’s the person or advisor adviser who keeps you from giving loans to anybody, who tells people all the money’s tied up in investments, not available. We have nothing available to help you out and we’re not interested in your project.”
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Should you take the lump sum or installment payments?
That decision depends on your goals, your age, and what lottery rules are for beneficiaries to continue receiving payments, or if you’d likely squander a lump sum.
Mark Steber, chief tax officer at Jackson Hewitt, recommends considering the following:
- Size of the lottery winning: That can serve as a guide to determining taxes you may owe and the financial security you can derive from it. If the amount is on the smaller side, a lump sum may simply be easier.
- Current and projected earnings: Consider your ability to earn money and tax rates over your lifetime.
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How much do you bring home?
That depends on how you decide to take your money and complex state laws.
If you win the lottery, you’ll likely be propelled into the highest federal tax bracket. Your state of residency and where you bought the winning ticket can greatly impact what you pay in state taxes.
For example, if you’re a California resident and purchase your ticket there, then you pay the 37% federal tax rate but are in luck because California doesn’t tax lottery winnings, Steber said.
New York, though, has the highest tax rate on lottery winnings.
But, if you’re a California resident on vacation in Rhode Island and decide to buy a ticket there, you’ll have to include your lottery winnings on your federal and California tax returns and file a nonresident Rhode Island tax return for your jackpot. You should claim a tax credit for the Rhode Island taxes on your California return so you won’t be double-taxed on the same income in two states, he said.
“This is where a tax professional really comes in handy,” Steber said. “State taxes can be very tricky.”
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“How long does it take to get your money if you win the Powerball?”
Once you claim the prize, it shouldn’t take too long, Azoury said. “Maybe a couple of weeks,” he said.
Remember, most people won’t claim their winnings right away because they’ll take time to set their plan. Claim periods vary by jurisdiction so people should check with the lottery in the state where the ticket was purchased to get the applicable claim period for that ticket.
Powerball claim periods range from 90 days to one year from the draw date, the lottery said.
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Where should I park my money until I decide what to do with it?
After a big lottery win with a large payout, the question of where to park the money until decisions are made with a financial advisor, tax accountant and attorney is important to think about, says Azoury.
“One suggestion would be putting your winnings in a brokerage account, as many brokerage firms can spread the cash deposits across multiple banks,” he said. “Within one brokerage account, up to $4 million can be insured, if single, and up to $8 million can be insured on a joint account.”
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at email@example.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
Story Credit: usatoday.com