With the annuity, you get your payout over time, and youll get more money.
That adds up to just overa billion dollarsover time.
Pretty good, I guess, but its nobilliondollars.
To keep things simple, well assume you dont have state taxes.
In five years, youd earn $871 million.
In 30 yearsthe payout term for the annuityyoud earn$3.74 billion.
That more than makes up for the money you lost by opting for the lump sum amount.
Its not quite that simple, though.
Tax LawyerDavid Hryckexplains:
If you take the lump sum, you will be paying taxes twice.
You pay on the prize itself and again on your investments.
Over time, this will add up for you as your winnings grow with no tax stipulations.
Like we said, its complicated.
A multimillionaire shouldnt have to do this much math.
And most experts seem to think the tax savings of the annuity outweigh the return of the lump sum.
You might also choose the annuity if you have a hard time managing your money.
Youre a multimillionaire, I know!
Its time for couch jumping and champagne popping.
However, if theres one thing Ive learned from sitcoms, its thatacting impulsively when you win the lotteryalwaysbackfires.
You need time to understand the rules and come up with a reasonable plan.
(Mark your calendar, though, because youll be kicking yourself if you miss that deadline!)
When friends, family, and creditors find out you won, theyll start hitting you up nonstop.
In New York, for example, winners names are a public record.
Maybe you won the Powerball as part of an office pool.
In thie case, things get a little messy.
In most states, there can only be one payee per ticket.
So youll have to create a single entity to represent all of the winners.
In these instances a group arrangement should be used for all purposes and should be documented appropriately.
A good lawyerwill walk you through these issues, but it helps to know what to expect.
Once you do claim your ticket, youll have another 60 days to decide how youll receive payment.
Calculate How Much Youll Actually Lose to Taxes
Congratulationsyoure in the one percent!
Youve gotta pay up.
Assuming you quit your job, youll have to pay estimated quarterly taxes now, too.
A good CPA will help you figure this out so you’re able to avoid tax penalties.
Its pretty easy, though.
You canpay these taxes online, too.
Keep in mind: youre also in the highest possible tax bracket now, too.
For 2016, that means your federalincome tax rate is 39.6%.
However, if you opt for the annuity, your rate could very well change over the years.
Heres how one tax proexplained it to Business Insider:
As we know tax rates are always changing.
If you take a lump sum you are looking at a 39.6% rate.
If they ask… thats the wrong lawyer.
Ideally, you want a fee-only financial advisor, too.
This CFP should also be able to help you with taxes or refer you to someone who can help.
Protect Your Massive Nest Egg
A good lawyer will help protect your money.
Forbesexplains how this asset protection plan worksin a little more detail.
For example,Morrison told Timethat his lawyers even suggested kidnap and ransom insurance to protect his family.
He says he opted out but hired security to protect his home and children.
He also suggested claiming your ticket at a lottery office far from your home town.
Plus, when you have debt to pay, that means youre paying interest.
In general, though, youll probably be fine.
That is, assuming you actually win.
Illustration by: Sam Woolley.
