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Mega Millions players can continue daydreaming.
With no one getting all six numbers drawn on Friday, the jackpot has risen to an estimated $ 376 million. And Powerball, with the next draw for Saturday night, is $ 341 million.
Of course, due to taxes, these advertised amounts are not what you would end up with if you managed to beat the astronomical odds of winning a single ticket (1 in 302 million for Mega Millions and 1 in 292 million for Powerball).
Even so, the sudden gust of wind in your life would likely feel overwhelming, experts say. And while you might want to claim your winnings, experts say it’s best not to rush to lottery headquarters on the day you discover your luck.
In other words, take a deep breath.
“The first thing I would recommend is to assemble a team of professionals to handle the many aspects of getting started in this type of money,” said Doug Boneparth, certified financial planner, president of Bone Fide Wealth in New York.
This team should include an accountant, a financial advisor, and a lawyer. Here are some other considerations when hitting the jackpot.
Annuity or lump sum?
You can choose to take your winnings either as a lump sum or as a 30 year pension. For the Mega Millions jackpot of $ 376 million, the cash option is $ 287.4 million. For the $ 341 Powerball prize, that amount is $ 262.5 million.
Experts usually recommend getting the money all at once – which is what most winners do.
“The flat rate distribution would be the preference,” said Boneparth. “When you do that, you have more control over the money.”
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However, he added a caveat.
“If you’re not disciplined or are afraid to invest with support too, the annuity may be a better option,” said Boneparth.
The tax hit
Before the money reaches you, 24% is withheld for federal taxes. For Mega Millions’ $ 287.4 million cash option, that would mean $ 69 million off the top and you get $ 218.4 million. For the Powerball flat fee of $ 262.5 million, withholding tax would be $ 63 million, leaving $ 199.5 million.
But that’s not all. The highest marginal rate of 37% applies to income above $ 518,400 for individual taxpayers ($ 622,050 for married couples filing together) which means much more would be due at tax time. And state taxes can be withheld or due.
“If you factor in city, state, and town taxes in some places, you might look into this [close to] 50% goes to taxes, “said Boneparth.
There may be strategies in place to reduce your tax payments. That is why it is important to have a tax advisor on your team.
If you can’t claim your prize anonymously – it depends on the state – you can skip town for a while. Unwanted attention can come from both the public and the extended family.
“Your fifth uncle, once removed, could reach you,” said Boneparth. “Find a comfortable place and go away.”
If you want to share some of the money with family or friends, plan these gifts ahead of time, said Boneparth.
“You want to avoid getting hit repeatedly,” he said. “You can set expectations in advance. Then planning really comes into play.”