Your own private island. A villa in Tuscany. A sprawling mansion in Malibu. A ticket around the world. Oh, the things you could do with $1.3 billion in lottery winnings. But before you get carried away, consider those past lottery winners who mismanaged vast fortunes, losing everything. Don’t fall victim to the same fate.
Live life as usual, until you develop a plan for how you will handle your winnings. You’re excited. Who wouldn’t be? But it would not be financially wise to buy a house, boat or luxury car the day after winning big. You will want to consult both a CPA and a tax attorney who have experience dealing with unexpected windfalls. These professionals can help you determine if you should take the lump-sum or annuity payment option, and help you develop a plan for how to use your new-found fortune.
How much money will you actually walk away with? Just because the jackpot is now advertised as about $1.3 billion does not mean that is the amount that will wind up in your bank account. Winnings of more than $5,000 are subject to a 25% federal withholding tax. The actual federal tax rate is likely to be higher — possibly as much as 39.6%, depending upon other factors such as income, deductions and residence. Additionally, depending upon where you live, your winnings may be subject to state and local income taxes. Of course, if the jackpot sum is enormous, this likely will not make a huge difference. However, it is important to keep in mind.