You’ve managed to do what millions of people wish for, win the Powerball, but is an annuity the right option to obtain your winnings? It has been proven that 96-percent of Powerball winners choose the lump sum option. Annuity payments are delivered monthly for a period of 29 years when you win a lottery jackpot. Your options will be laid out below, to show you which option makes more sense financially.
Time Limit to Choose Payout Type
Once you claim your Powerball jackpot winnings, you must decide how to take the payment within 60-days. It is important to remember that you can lose your entire amount of winnings if you do not choose your method of receiving your winnings within this period. You may be able to obtain an extension if your financial advisor or finance attorney files a motion with the state lottery commission.
Pay Less Tax on Lottery Winnings
Do you know how annuities work? It is important to first understand what an annuity is before choosing it as you option for receiving lottery winnings. It is also important to know how your choice of taking an annuity affects your taxes. Lump sum lottery winnings are taxed at a rate of 39.6-percent in terms of income tax as it puts you in the highest tax bracket. State taxes vary.
When you opt for annuity payments, you are paying tax on the amount released or disbursed to you annually, which reduces your lifetime tax burden. The IRS automatically takes 25-percent of your winnings, with the remaining amount due with your income tax return.
You Can Sell Partial Annuities
If you have an immediate need for cash and cannot wait for either your lump sum Powerball payment or the first annuity payment to come in, you can sell a portion of your total annuity value. The first question you should ask your financial advisor is how much you can get in a structured settlement sale. You will be offered less than the value of the annuity account so that your investor can turn a profit. The typical amount settlement sales are reduced by is between 8-percent and 14-percent.
Why Lump Sums Are More Common
It might be difficult to decide whether to take a lump sum or the structured annuity payments. Your payments will be rather large and will put more money in your pocket with reduced taxes, but that big amount of money looks rather attractive. If you are not an individual Powerball winner, you can still decide how to receive your portion of the winnings. Each person in a group player situation has the option of taking a lump sum or the structured payments.
One of the reasons that lump sums are more common is because some people believe that waiting for their money is inconvenient, while failing to realize it provides them with more income over time. More money over time should outweigh that big chunk of cash sitting in a bank account.
How the Funds become an Estate Asset
Powerball prizes are also known as annuity certain. What this means is that if you are scheduled to receive annual payments until the year 2045, as an example, and you die before then, the rest of your annual annuity payments become part of your estate. Essentially, your structured annuity becomes an asset. Many financial advisors suggest taking the annuity payment option for this reason.
Using your Winnings Smartly
Making good decisions with your Powerball winnings can help you create a legacy. You can invest and create a family asset to pass down from generation-to-generation. Investing in the stock market, mutual funds, or in a business often generates a return on your initial investment. These returns can be used to invest in more industries, real estate development, or create trust funds for family members, as examples of options.
You should also be careful about who knows that you won the lottery. This draws long-lost “family members” out of the woodwork asking for financial assistance. This can bleed you dry. Be careful about being generous. Winning the lottery is an opportunity to place your immediate family in a financially comfortable position for life.
Closing Thoughts on Taking Annuity Payments when Winning the Powerball
When you win a major Powerball jackpot, like those that break records, claim it anonymously if your state allows it. This helps protect you against identity theft, home invasions, and other scenarios that could cause you harm. It is a good idea to hire a financial advisor to help you decide whether to choose an annuity when you win the Powerball or the lump sum.