How to Receive a Lottery Jackpot
When a lottery jackpot hits the news, it can spark fantasies about a new car, a big house or perhaps a new yacht. But even the largest prize can’t cover all your expenses, and some winners end up in debt or bankrupt after a large windfall. So, how do you plan for a huge jackpot win?
Lottery winners have the option to receive their winnings either in a lump sum or as an annuity. In Iowa, Powerball, Mega Millions, Lotto America and Lucky for Life jackpots can be paid out in both options, while Pick 3 and Pick 4 games offer only cash payouts. For a more in-depth look at the different options, USA Mega has a calculator where you can input the amount of your winnings and see how it would be paid out in either form.
If you opt for the annuity, you’ll be receiving the first payment right after winning, followed by 29 annual payments that increase each year by 5%. If you were to die before the annuity’s full payoff, any remaining payments would pass on to your estate.
It’s worth noting that while you can choose how to receive your jackpot winnings, the federal tax rate on lump-sum prizes is 24%, and federal income taxes apply to annuities as well. So, if you do decide to take the lump-sum option, be sure to consult with a financial planner and consider all your tax consequences.