Everyone has big dreams of hitting the Lottery, especially now when the jackpot is so huge. What they do with those winning varies slightly from person to person but you can often hear the typical “I’d buy a house” or “A personal jet” huge purchases or the more practical “pay off all my debt”. Although, we all know the winning is taxable, less discussed is the payout options available to winners.
The lotto winner receives the entire value of the prize at once, taxes are due on the total amount when you file their taxes for that year. You can invest the money right away to capitalize on potential returns and you have access to liquid funds. This option is best suited for prudent individuals who can manage their money wisely.
Payouts are distributed evenly at a set interval until the total winnings are disbursed. These funds are also backed by the U.S. government. A huge benefit of this is that taxes are deferred until payouts are received, spreading out the tax implications over the time of the payout and hedging that tax rates will be more favorable at different times. This option always individuals to avoid imprudent spending choices but have little liquidity and access to cash. The annuity also earns interest so for conservative investors this is a good fit.
As always, these decisions are very personal, and it is prudent to discuss options with professionals such as accountants and financial planners. The best thing a lotto winner can do is to make their winnings work for them!
Athena K. Stone has been with Attentive Investment Managers, Inc. since 2003, is an Investment Advisor and the Chief Compliance Officer for the company. Mrs. Stone earned her Chartered Retirement Planning Counselor (CRPC) designation in 2010 from the College for Financial Planning. She received the designation of Accredited Investment Fiduciary (AIF) from Fi360 in 2011. She earned her Bachelor of Arts Degree in Organizational Leadership from Brandman University in 2012 and her Master of Science in Financial Planning and Designation of MPAS (Master Planner Advanced Studies) from the College for Financial Planning in 2018.
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