Record-Breaking Powerball Jackpot Soars to $1.2 Billion: The Powerball jackpot has reached an astounding $1.2 billion (yes, billion with a b.) after Saturday night’s drawing concluded without a victor. The next drawing will take place on Wednesday, October 4, and according to the Multi-State Lottery Association, the jackpot is the third largest in the history of Powerball.
On July 19, the final winning Powerball ticket was sold in California. Since then, 32 consecutive drawings have passed without a Powerball jackpot victor.
Even though the odds of winning the Powerball are low (1 in 292.2 million to be precise), it’s difficult not to fantasize about what you’d do with all that money. However, how much of the jackpot would you take home after taxes? We’ll break it down and suggest five strategies for investing your windfall safely.
Record-Breaking Powerball Jackpot Soars to $1.2 Billion: How are taxed lottery winnings?
Regardless of your good fortune, Uncle Sam will always come calling. The IRS taxes lottery prizes differently based on the method of payment chosen by the recipient. You have two choices: lump sum settlement or annual payments distributed over 30 years. In reality, the majority of lottery victors elect for the lump quantity of cash, despite the fact that they will ultimately receive less money.
What do federal taxes on a single-sum payment look like? Any prize over $5,000 is subject to a 24% federal tax rate, which is promptly deducted from your proceeds. And for a large prize like the Powerball, this single sum will propel you into the highest income tax classification, so you will pay the highest federal tax rate of 37 per cent the following year.
The annuity option gives you the entire $1.2 billion pot over an extended period of time, but 24% will still be deducted from the top of each installment. In addition, if you win a massive lottery reward, such as the Powerball, you will be placed in the highest federal tax bracket and required to pay any additional federal taxes owed.
There’s also the state tax bill to consider
Just when you believed your windfall was secure, state taxes arrive. The amount of state income tax you must pay is dependent on where you reside. New Yorkers pay the greatest state tax rate at 13%, while the applicable state tax rate varies from 2.9% to 8.82% across the country.
Of course, if your luck persists, you may find yourself in one of the states listed below that do not impose a state income tax:
- Alaska
- Florida
- New Hampshire
- Nevada
- South Dakota
- Tennessee
- Texas
- Wyoming
- Washington
Record-Breaking Powerball Jackpot Soars to $1.2 Billion: What would you take home after paying taxes on the Powerball?
It may be unlucky to count your poultry before they hatch, but suppose you win the billion-dollar jackpot. If you choose the single sum settlement, you will receive $551,7 million in cash immediately.
However, because your winnings are also subject to a 24% tax withholding, you will only receive $912 million to deposit in the bank. Depending on your filing status the following year, this amount is also subject to a tax rate of up to 37%, which means that money is substantially diminished before you submit your state tax return.
If you are willing to wait 30 years, the annual payments begin at $18 million the first year and increase by 5% each year until they reach $74 million by the end of the 30th year. This is prior to federal taxes.
To learn more, you can use the Powerball Tax Calculator to run the numbers and examine the fine print.
Powerball Jackpot Rises To $925 Million, Check The Amount That Winner Will Get
5 profitable investments for Lottery Winnings
Enough with the tax discussion. Suppose you have won the lottery and joined the society of billionaires. Here is what experts recommend lottery victors do to maximize their winnings and ensure a financially secure future.
1. Hire a financial adviser
Prior to cashing the check, it is prudent to employ a financial adviser and a tax attorney or accountant who can assist you in managing your tax obligations and investing money prudently.
2. Diversify your financial plan
Remember that banks are only insured for deposits up to $250,000, even if you believe you’re being responsible by storing cash in a bank. Be deliberate about where you invest your money and how you distribute it.
3. Repay outstanding obligations
It will likely be a great relief to live debt-free for the first time. Paying off outstanding loans such as mortgages or credit card debt is generally prudent because it prevents the accumulation of interest. However, keep a watch on your credit scores before opting for a cash-only lifestyle.
4. Invest prudently
Extra income may entice you to experiment with new investment strategies, but avoid investing in financial products you do not fully comprehend. For the first few months, stick to low-risk investments such as bonds and secure securities or equities, and educate yourself on the power of compound interest.
5. Consider establishing a nonprofit organization
While you might choose to keep the fact that you won the lottery private, family and friends will inevitably find out. It is advantageous to establish a charitable foundation to handle requests or gifting strategies that do not incur additional tax liability.
And finally, if you win the Powerball, use your winnings to live the ideal without concern for your bank account balance.