This week, the Powerball jackpot reached around $640 million, and Mega Millions tipped $750 million. The nation’s fantasies of winning the lottery are growing even though the odds of winning are minuscule (1 in 292.2 million and 1 in 302.5 million). But, if you are the lucky winner or even one of the lucky winners, there are a few tips to keep in mind in order to keep the happiness quotient flowing.
The state that you live in has an impact on what you’ll take home in winnings
Lottery winnings are considered income, so the first bite will be from the federal government. Welcome to the 1 percent! Then there are those pesky state and local taxes, and for lottery winnings, taxes may well differ from the way ordinary income is taxed. Powerball and Mega Millions are lotteries that are played in 45 states, the District of Columbia and the U.S. Virgin Islands. If you live in New York State, you are a two-time winner: once for winning the lottery and the second time for living in the state that taxes lottery winnings at 8.82 percent, the highest in the nation. But, don’t gloat, Maryland is not far behind at 8.75 percent. On the other end of the spectrum, you could live in California or 14 other states, which don’t tax lottery winnings at all. And don’t worry about doing the calculations — those taxes, or a large percentage of them, will be withheld automatically. You won’t even see that money.
You only want to tell your mother?
Laying low and figuring out your strategy, once you’ve won, is a good plan, but most states require that you come forward and claim your prize as well as participate in press conferences that function as advertisements for the lottery. The only states that allow lottery winners to remain anonymous are Maryland, Delaware, Kansas, North Dakota, Ohio, Texas and South Carolina.
Here’s what to do first
- Double or even triple-check that you have actually won. These big jackpots do cloud the brain. If you have actually won, go home, copy the ticket, and put it in a safe place. Do not (repeat, do not!!) sign the back of the ticket. The signature on the back of the ticket determines to whom the winnings will be distributed, and you will want to speak to an accountant or financial advisor before making that decision. They will help you to decide whether to take the money in 30 yearly payments or in a lump sum (an excellent decision to have to make). Although the taxes might be lower by taking the yearly installments, you have to take into account the return on investments you can make with the lump sum, which you will receive relatively quickly.
- Think about how you’ll pay it forward and backward. Paying it forward means setting up a charity or making some charitable donations. Paying it backward means taking care of loved ones with estate planning. Both require input from trusted financial advisors.
- Kiss your student loans goodbye. While you might not want to pay off every loan immediately (those with low interest rates might be good ones to keep), you will want to pay off any high-interest credit card bills or student loans.
There is a good chance that you’ve read this article for no good reason. The probabilities of winning a Powerball or Mega Millions jackpot are not promising. But, if you are the one, move slowly and remember: Money can’t buy happiness.
(Or maybe it can?)
Have something to add to this story? Comment below or join the discussion on Facebook.