(Nexstar) – If you hit the Powerball Jackpot on a Saturday night, it’s crucial to know what to do next to avoid making costly mistakes, according to experts.
This past Friday, the jackpot surged to $1.8 billion, marking it as the second-largest lottery jackpot in U.S. history, trailing only behind a $2 billion prize from California in 2022.
The numbers before the tax take are astonishing, but how you handle that newfound wealth afterward can significantly impact your financial future.
“One of the biggest concerns for sudden wealth winners, especially lottery winners, is that they squander it,” said Robert Pagliarini, who penned The Sudden Wealth Solution.
For over two decades, Pagliarini has guided clients, lottery winners included, on effectively managing significant money inflows. He emphasizes that the goal is to convert that lump sum into sustainable wealth, which often requires careful planning.
The Key First Step
A lottery ticket is just a piece of paper—they can be lost or even destroyed; someone once washed their ticket by accident.
Until it’s signed, the ticket acts as a financial document owed to whoever possesses it physically.
“That’s why it’s essential to prove ownership of that ticket,” Pagliarini advised. “I suggest taking a selfie with the ticket, recording a video, signing it, and storing it in a very secure location.”
Don’t Go Solo
If feasible, keep the lottery win under wraps while you assemble a team of professionals.
Pagliarini cautions that once the news spreads, you may face unexpected visitors—friends, family, or even new acquaintances looking for a handout. Therefore, he recommends quickly hiring an attorney, a tax advisor, and a financial planner.
When the money hits your account, the world is going to take notice. It’s exciting, but it can also put you in a vulnerable position. You need to manage that attention wisely.
It’s better to stay out of the limelight and divulge your win to as few people as possible. Also, be prepared for interactions with the media.
Lump Sum vs. Annuity
Winners of significantly large prizes, like the Mega Millions Jackpot, face a tough choice in how to receive their winnings.
If someone outflanks the 1 in 302,575,350 odds and claims the Mega Millions Jackpot this Friday, they will need to decide between 30 annual payments spread over 29 years or opting for a one-time lump sum of roughly $162 million.
Pennsylvania-based financial planner Nicholas Banio indicated he would personally opt for the annuity, even with extensive financial knowledge.
“Mistakes happen,” Banio reflected. “People often fail to recognize the risk of loss and focus solely on potential gains.”
The gap between choosing cash and annuity payments has widened due to inflation and rising interest rates, which could result in favorable investment returns. The annuity essentially invests the jackpot funds and pays the winner over time.
“Ultimately, you need to evaluate what’s best for your situation,” suggested CFP Stephen Ivensen from Gerber Kawasaki.
While lump-sum payments offer immediate access to cash, they come with greater tax implications.
“Federal taxes can go as high as 37%, along with state taxes,” Evensen warned. “Before you spend any of it, consult an accountant to ensure you’re not overextending your expectations.”
Regardless of how you decide to receive your funds, it’s wise to invest a portion. Starting points like low-cost mutual funds or index funds are often ideal.
