So you’ve been faithfully trying the Powerball lottery, and finally struck gold.
Congratulations! The odds seemed to be an impossible dream for you to win a mega drawing.
Assuming you did. Now what?
There are financial precautions you should take.
Yep, be smart about it. Unless you plan carefully, your mega windfall will result in a nightmare.
1. Deliberate in your decision-making
Resolve to be analytical in how you handle your winnings. There’s a lot to think about.
2. Don’t forget about income taxes
Multimillion dollars in winnings, means you two things. 1. You’ll have to pay taxes. 2. You’ll be in the highest federal tax bracket – 39.6 percent.
Not only that, unless you’re in a state like Washington where there are no income taxes you’ll be hit with a state income tax bill.
Worse, if you buy your ticket outside your home state, you’ll be hit with taxes for both states.
3. Taking a lump sum
Decide what’s best – taking a lump sum or a payment over 20 years. For many people, it’s best to take the money in a lump sum. This will mean your money will earn more interest.
Be aware you’ll have to pay a significant amount in taxes upfront.
However, if you invest wisely you’ll have more money in 20 years than if you accepted 20 annual installments.
“We’ve all heard stories of lottery winners, rock stars, heirs and heiresses, and professional athletes becoming millionaire morons who wake up rich but are broke by nightfall.”
4. Go for installments, if you plan to spend the money right away
It’s true, you’ll be better off in the long run if you take the amount in-full. However, if you have plans to spend the money, go the installment route.
But spread it out over the years.
5. Suppose you die unexpectedly, know what happens
If you die, the winnings can be passed to your spouse without being taxed. However, if you’re unmarried and depending where you live, your heirs will face estate taxes probably for more than 40 percent.
From the Coach’s Corner, more advice on finance:
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You’ll have multiple financing options.
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“My wife said to me: ‘If you won the lottery, would you still love me?’ I said: ‘Of course I would. I’d miss you, but I’d still love you.’”