Most big Powerball jackpot winners choose the lump-sum payment despite the many benefits of instead taking the monthly payments of a Powerball annuity.
Not too long ago, the Powerball jackpot climbed to over $1 billion, an enticing amount that caused people across the nation to buy their tickets in droves and get in on the potential to strike it rich. Naturally, ticket holders daydream about how they will spend their prize winnings. But many winners aren’t aware of the benefits of not taking the big prize as a lump sum, rather, choosing an annuity payment. Read on to find out why an annuity payment just might be the better choice for Powerball jackpot winners.
1. Guaranteed Income
Annuity payments offer the winner a guaranteed annual payout for 29 years, with the amount increasing by 5% with each annual payment. For many Powerball jackpot winners, such a large amount of money is staggering, and most would not know or understand how to manage such a sum and spend it wisely. An annuity payment offers peace of mind for winners due to the expectation of the same amount each year.
2. Tax Advantages
Another detail people sometimes forget is the tax implication for jackpot winners. Once the Powerball winner collects the prize in a lump sum, a whopping 24% is shaved off the top by the IRS, and though the amount may vary, states will take their share too, around 3% to 11%. Once it’s time to file taxes, winners can expect to be bumped to the top tier of the income tax bracket, depending on the amount of their lump sum payment. On the other hand, Powerball jackpots that are paid out with annuity payments don’t carry the same tax implications that lump sum payments do, and the money is interest-bearing, resulting in fewer taxes.
3. Long-Term Financial Planning
For long-term financial planning, choosing the annuity payment plan is ideal for prize winners. Because recipients know that the amount will be the same annually, they are more apt to budget appropriately and plan accordingly. Other factors, such as retirement or large expenses, can also play a part in the planning and budgeting of an annuity payment. While the amount received from the annuity annually won’t affect social security benefit payments, it can be put aside in a 401K or money market savings plan for retirement purposes.
4. Protection Against Impulsive Spending
Many Powerball jackpot winners who hit a large lump sum purchase big ticket items like sports cars, mansions, watercraft, or vacations. The money is spent quickly, and before they know it, winners are left with empty pockets and certain items that require expensive maintenance or big property tax payments. An annuity payment plan creates a financial infrastructure that curbs excessive spending because the expected amount comes at generally the same time every year and pays the same amount. Better decision-making and a firm grasp of how much money will be received will make for responsible spending.
5. Estate Planning Benefits
What happens to the money if the Powerball winner passes away? Annuity payments can be inherited by the heirs so specified in the winner’s will and estate. Knowing that these annuity payments will continue even after the passing of the annuitant means that this wealth can continue to future generations.
Why Lump-Sum Payouts Are Still More Popular
Even after considering all the points mentioned, most jackpot prize winners still choose the lump sum amount. Many winners have so many directions they’d like to see the money go: charities, home purchases, vacations, and vehicles. And a lump sum payment can facilitate these purchases. Those who win a large Powerball prize aren’t always interested in waiting six to eight weeks for an annuity check to arrive. They want access to their big money winnings to begin fulfilling their dreams.
Both options for winners have their advantages and disadvantages. It's up to the individual holding the winning Powerball ticket to decide which one is the best for them. It’s why so many experts suggest consulting a professional before making your official decision about how to accept your Powerball payout. So, explore your options while you play Powerball. You could be faced with a big jackpot payout decision!