Gain Control over your lottery winnings before they control you
The year was 2016, to be more precise Jan 2016 when the largest prize money in the history of Lottery was announced – 1.5$ billon Powerball jackpot. The winning tickets were sold in three states – Chino hills, California,Munford Tennessee and in Melbourne Beach, Florida. Only 1 in 292 million Americans might win the lottery but the prize money was so much that everyone scurried to be that one in a million.
Lotteries are considered to be one of the easiest ways to make money. The ticket itself costs a few dollars while the jackpot,if you win will bring in a millions. The thought of unlimited reserves of cash is motivation enough to buy a lottery ticket time and again, week after week for years together. But very few realize that all that glitters is not gold and that the business of lotteries is much more than that meets the eye.
Let’s start on a positive note and get educated on what you need to do with your winnings before you are broke (sadly almost 70% of winners are broke within 5-6 years of their fortune). But by been prudent you can actually reap the benefits of your bonanza.
Sudden wealth and you
Often people think a windfall is all they need to set them on the right track little realizing that sudden wealth can become a bane instead of a boon. Winners of Powerball and Mega million are often flabbergasted to say the least in the beginning and make costly mistakes that ruin their fortune. Here are a few tips which will help you stay afloat
- Firstly, sign your ticket and keep it safe; you have six months to a year to stake your claim on a jackpot. Remember an unsigned ticket can be claimed by anyone.
- Taxes play a big role in deciding what percentage of the winnings you can take home. Furthermore to understand the rigmarole of the various taxes you should hire a reliable tax advisor. Even the way you take your money (you have 60 days to decide) will affect the tax you pay; you pay more tax when you take lump sum money than when you take it in 30 annuity payments.
- Unless you enjoy the fame that comes with winning, it is always safe to protect youridentityfrom scamsters,salesmen,reporters and even long lost friends and relatives wanting to rekindle old ties.
- It is good to think of the less fortunate and share your good fortune with any charitable organization. Not only will it keep you grounded but charity will deduct your taxable income by 50%.
- It is not easy to curb the desire to splurge when you have immense wealth but don’t count your eggs before they hatch because the final payment will be far less than the prize money. Many a winner went broke because of this very fact.
- Now that you have sufficient funds to do all the things that you wanted, you should also plan for the future. Seek the advice of a financial consultant to help you invest your money in stocks, funds, ETFs to secure your future.
There is this story of a 62 year old woman who declared bankruptcy after winning a lottery. This woman was sued by her former boyfriend for not sharing the prize money according to an oral agreement. The law decided in favor of the boyfriend and this lady ended up losing everything that she won after paying taxes and lawyer’s fees.
Thus we see that money has the power to make or break a life. In the above case the lady went bankrupt after winning but what happens if you are already bankrupt and you win a fortune.
Bankruptcy and lotteries
Actually in such cases the lottery becomes a boon because it offers the individual an opportunity to clear all his debts and start fresh again. Often the winner can offer a proposal to the creditors with the court’s knowledge to annul the bankruptcy. This way the creditors receive their funds earlier and the bankruptcy record too is removed.
How taxes eat away your prize money
Do not be too exhilarated when you win a lottery because the prize money which you win is not what you get to take home. The government has a share in it too. Your winnings are subject to taxes. Besides the federal taxes there will be state tax and other localtaxes too. The tax withholding rate is 25% on lottery winnings and at time go up to even 39.6%. Only Florida, New Hampshire, South Dakota, Tennessee, Texas, or Wyoming, are the states where there is no state tax on income.
The tax you pay when you take a lump sum amount is more when compared to the tax paid on annuity payments. Whatever be the case, ultimately a major portion of your winnings goes away to fill the government coffers.
Let us now look at the two most popular lotteries in the United States and which is a better option.
Powerball versus Mega millions
Approximately a little over hundred millions Americans buy lotteries each year and the two most popular and well known lotteries are Powerball and Mega millions. Their popularity can be ascribed to the huge price money which can be anywhere between ten million dollars to a few hundred million.
Nevada, Alaska, Hawaii, Mississippi, Alabama and Utah are the only states that ban lotteries in the US. Ofcourse, that needn’t stop you from driving across the state border and buying a ticket to a possibly rich future.
The factors that determine a better choice are:
- Odds of winning – they are stacked in favor of Mega millions.
- Expected return on your money – Again Mega millions chances are high.
- Size of the jackpot – Here the scale is tilted in favor of Powerball with a 40 million jackpot for starters while mega million is only 12 million.
Finally, you shouldbe aware of the drawbacks of winning a lottery too.
Pitfalls of lottery winning
Lottery winners’ lives are rife with tragedy. 70 % go broke within 7 years.The euphoria of winning a lottery ends first when you receive the prize money which is far less than what you expected; second when friends and family claim a share in your windfall which often turns sour which eventually leads to depression, drug abuse, alcoholism and maybe even suicide. Probably you need to take a reality check and decide whether winning the lottery was worth.
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