Whenever you play Powerball, you should also be prepared to win, including making decisions about taking a lump-sum payout or annuity payments of your jackpot.
Imagine the scenario. You head over to your local Powerball retailer to buy a ticket and try your luck at winning a sizable jackpot. You carefully select your numbers, and like thousands of others, you head home to wait and see the results of the drawing. And low and behold, your numbers match – welcome to the Powerball winners club!
The excitement sets in, and you start making plans for all the things you want to buy or pay for first. But now you have some tough decisions to make. Should you collect your winnings in a lump sum? Or is taking the annuity payment the smarter option? Today, we’ll unravel your Powerball payout options, so you can ask the right questions and make the best financial decisions about collecting your jackpot.
What Does It Mean to Take a Lump Sum Payout?
Should you choose to collect your Powerball jackpot in a lump sum, it means you’re opting to collect all of your winnings in one deposit for a price. The total winnings will first be taxed, both federally and with state taxes. The remaining amount will then be lowered, in many cases by almost half, before paying out the remainder.
For example, if your Powerball jackpot is $52 million, you can expect to pay anywhere from $8 million to $12 million in taxes right off the top. With a lump sum payout, you can expect to take home roughly $30 million as an advanced payment.
What Does It Mean to Take the Annuity Payout?
When you choose the annuity option for your Powerball jackpot payout, it means you’re opting for annual payments over time. Powerball annuities are realized in 30 payments over the next 29 years. Again, you’ll be responsible for federal and state taxes, although taking the annuity means collecting a total amount closer to the actual jackpot prize.
For example, if your Powerball jackpot prize is that same $52 million, you’ll collect roughly $1.5 million every year, which after taxes is about $900,000.00.
How to Decide and What to Consider
Before making your decisions about how to collect your Powerball jackpot, you’ll want to consider your personal situation. It’s always recommended that winners consult with a trusted financial adviser before coming to any conclusions. Your current financial situation matters, as does your age. For example, if you’re already retired, you may not want to spread payments out over another 30 years, instead opting to take the lump sum payout. Alternatively, if you’re in college, with a lifetime of goals ahead and little financial management experience, the annuity might be the better option.
Insights to know about lump sum payouts:
- Winners collecting lump sum amounts might move into a new tax bracket for the year, nearly tripling traditional tax filings.
- This is an ideal option for financially savvy people who have plans to invest larger sums.
- Lump sum payments allow winners immediate access to their winning funds.
Insights to know about taking the annuity payouts:
- Payouts are distributed evenly as annual payments.
- Taxes are deferred until each annuity payment is disbursed.
- Annuities are fixed, meaning you can’t change your mind midway through your payout term should you need access to your money for an emergency.
- Annuities are ideal for those who need help to prevent overspending, with allocated payments over time.
If you find yourself holding a winning Powerball ticket, congratulations! Your life is about to change in a BIG way! Just be thoughtful about considering your options before making a decision about collecting your jackpot. Keep these insights in mind, so you’re prepared. Ultimately you'll want to set yourself up for financial freedom for years to come.