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The Mega Millions jackpot has risen.
After no ticket matched all six numbers drawn on Friday, the grand prize is now $ 432 million for the next Tuesday night drawing. Powerball’s jackpot is $ 384 million for the Saturday night draw.
While the chance that a single ticket will match all six numbers in both games is tiny – 1 in 302 million for Mega Millions and 1 in 292 million for Powerball – it is still worth pondering how to deal with such a godsend would if you beat the odds of winning.
The after-tax amount would change your life. Experts say big lottery winners should assemble a team of seasoned professionals – a lawyer, tax advisor, and financial advisor – to handle the windfall.
Here are some things winners should consider before going to the lottery headquarters to receive their prize.
The general advice is to tell as few people as possible about it. Due to the predilection of scammers and strangers to track down lottery winners, it’s best to keep the exciting news close by.
Depending on what state you are in, you may be able to protect your identity from the public.
Only a handful allow the winners to remain completely anonymous. In other cases, you may be able to claim the award through a trust or limited liability company or LLC that does not have your name on it. However, you need to plan for this.
“If possible, never take the money on your own behalf,” said Kurt Panouses, founder of Panouses Law Group in Indialantic, Florida and an expert in helping lottery winners.
You can choose whether you want to receive your winnings as a lump sum or as a pension over three decades. Either way, the money will be taxed when you receive it.
Right now, federal income taxes are historically low – and it’s impossible to know where they could be in years. This means that from a tax perspective, it could cost more to withdraw the pension, as future tax rates will rise rather than fall, experts say.
“So the question is, do you want to pay all this income tax this year or keep the money going for many years without knowing where we might be income tax in 10 or 15 years,” Panouses said.
Before the gust of wind hits you, 24% is withheld for federal taxes. However, since the top marginal rate is 37%, you can be confident that you owe more at tax time – that would be April 2022 for prices claimed in 2021.
The flat-rate option for the 432 million Mega Millions jackpot is $ 329.7 million. The 24% withhold would mean $ 79.1 million go to Uncle Sam and you would receive $ 250.6 million.
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Suppose you didn’t have a reduction in your taxable income – such as For example, a large charitable donation would have an additional 13%, or approximately $ 42.8 million, due at tax time. That would be a total of $ 121.9 million going to the IRS.
The $ 384 million cash option for the Powerball jackpot draw on Saturday night is $ 295.4 million. The 24% withholding tax would reduce this by $ 70.9 million with an additional 13% or $ 38.4 million due at tax time. In total, that would be $ 109.3 million for federal coffers.
And then there are state taxes. They range from zero to more than 8%, depending on where the ticket was purchased and where the winner lives. In other words, you could end up paying more than 45% tax.