Most people have succumbed to either the urge to play the lottery or a daydream about winning the lottery. Whether your state has its own lottery or participates in some sort of Powerball or Mega Millions jackpot, there are news money stories about winners who have spend their prize on items ranging from the smart to the outright silly.
What would you do with your winnings? Would you pay off your debts? Clear any student loans or credit card balances, your mortgage?
The Run Down
- Winning the lottery places you into a higher tax bracket.
- You have the option of a lump sum payment or an annuity.
- If you accept a lump sump payment, you will be taxed twice on that income.
Most people don’t realize that even with a million dollar payoff a winner doesn’t receive a million dollars. Your winnings count as income and are taxable. Additionally, those winnings place you into a higher tax bracket. For example, one million dollars can easily turn into $400,000 after taxes, and you wind up owing money on that $400,000 pay out.
Even after taxes, $400,000 is a sizable amount of money. If you choose a lump sum payment on the million dollar prize, you would receive $400,000 after taxes. If you were to choose an annuity, you may receive an amount around $35,000 per year for twenty years after taxes. It may be easier to accept the lump sum and the income tax than to have that recurring tax expense for the next two decades.
The Takeaway
Congratulations, you’ve won the lottery. Do you accept a lump sum payment or an annuity over several years if not decades? It’s your money and your choice, from how you receive it to how you spend it. Make sure you’re making the best decision on how, when, and what you do with that money by doing the research. AmOne can help you to plan your finances and manage your savings (and any debt you might have). Our knowledgeable associates are ready to guide you through the process finding the right financial solution for whatever your need. AmOne offers solutions; your call to us is free and we won’t try to sell you anything. Find out how to reach us and learn more about how AmOne can help you today.
