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.
Lump Sum Payment
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.
Annuity Payments
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!