In June 2013, one person won the $590.5 million Florida Powerball Jackpot,causing almost everyone to wonder what they would do if they won that much money all at once.
Wait and Get Professional Help
Notice how long it took for the Powerball winner to come forward. Some say it’s because she didn’t know, but another likely scenario is that she was formulating a plan on how to handle the sudden windfall as well as the public scrutiny that comes with it. Lucky for her, she was in a state that gave her plenty of time to plan for the badgering and sudden long-lost relatives coming out of the woodwork. Waiting to claim your winnings and staying anonymous will give you time to do your homework.
You will need a lawyer as well as a tax professional and investment advisor who has a connection to any of the more reputable asset management companies.The lawyer will help you to handle the press and potential scam artists who will want to get a piece of your winnings by any means necessary. After carefully vetting these professionals, you’ll want to insist on having all of these professionals work together so that everyone is one the same page and you’ll have a system of checks and balances as you weigh your options as to how you’ll want to receive your winnings.
Play the Tax Numbers Game Responsibly
Bottom line is, winning the lottery means you automatically owe the IRS close to 40 percent of your winnings if it’s over $450,000.Depending on the state you live in, you could also be subject to state taxes as well. The good news is that how you receive the money can impact how you’re taxed. Getting a lump sum payment means that you will pay that tax rate up front. For $100 million, that means you’ll get a little more than $60 million after federal taxes and maybe another six million in state and local taxes. However, you can invest the money in any way you like using the asset management strategy you and your tax professional came up with. With the right moves, you can probably live off the interest of your winnings.
Between 60 and 90 percent of lottery winners go broke within five years. It’s a real riches-to-rags reality check that makes taking annuity payments seem like a sensible option. The good news with annuities is that you are guaranteed the income yearly whether you’re working or not. You will have to pay taxes but only on the money you receive. The other side of that option is that you don’t have the immediate access to the money. An annuity does have a premature distribution penalty of 10 percent and unless it’s set up correctly, beneficiaries may have to pay additional taxes as well. It’s a good idea to weigh your tax and income options first.
Avoid Crazy Sudden Life Changes
One of the reasons why a lot of lottery winners failed so quickly was that they started to buy houses, cars and quit their jobs along with other pricey sudden changes. These are great to fantasize about but bad moves to make. The first thing is to clear all of your debts. It’s a powerful feeling when you’re able to take your credit cards or car payments and just clear them off in one check. After you do that, you want to make sure you carefully plan other spends like vacations and house-buying. A variety of asset management companies advise clients to make charitable contributions or setting a trust for your children to make sure they have something in the future. Taking care of the home first is the best life change you can make.