Many people dream about lottery winnings and how they will spend their mountain of cash. Although winning a fortune could release you from financial problems, it could bring a new host of problems; particularly if you owe back taxes or have outstanding creditor liens or judgments.
One of the most prevalent problems with lottery winnings is most of the winners possess little money sense. Financial experts claim the majority of jackpot winners are broke within two years. Instead of investing their windfall, lottery winners often go on mega spending sprees and purchase multiple homes, fancy cars, glittering jewels and living the life of jet setters.
Another problem with winning jackpots is taxes. Lottery winnings are taxed at both state and local levels. Depending on the amount of winnings and state of residence, taxes could amount to 50-percent or more of total winnings. Individuals who opt for a lump sum payment will receive significantly less money than those who select annual installments.
Mega million and Powerball winnings can be paid in yearly installments through annuity payments. Annuity payments typically extend for twenty years and are guaranteed through a designated life insurance company. When individuals accept structured settlement annuity payments their lottery winnings usually fall into a lower tax bracket. This option allows winners to receive larger annual payments assessed at a lower tax rate.
Individuals who elect a lump sum cash payment will receive about 65-percent of total winnings. For example, when a person wins $1 million Powerball jackpot they will receive around $650,000. However, taxes are assessed on the full $1 million; making the final payout about $325,000.
Individuals who elect structured settlement payments would receive approximately $40,000 per year against the $1 million lottery winnings. Depending on the individual’s tax rate, they would receive between $20,000 and $30,000 per year. The overall after-tax payout would range between $400,000 and $600,000. Actual lottery payouts vary depending on personal tax status and state lottery regulations.
Individuals who invest lottery winnings have the potential to double or triple winnings. Instead of wasting money on material items consider investing in real estate, stocks, bonds, or cash flow notes. If you have always dreamed of starting your own business, use lottery winnings to build a solid foundation.
When receiving lottery winning installment payments make certain to place a minimum of 10-percent in an interest-bearing savings or money market account, or invest in savings bonds or certificates of deposit.
There is no doubt lottery winnings can provide financial freedom. In order to maintain that freedom individuals need to embark on careful planning and investing strategies that can minimize tax consequences. Individuals who win large sums of money through lotteries should organize a financial team consisting of a financial planner, tax accountant and lawyer.
Several investment options exist for capitalizing on lottery winnings. Wouldn’t you rather build a strong investment portfolio instead of wasting your financial windfall on materialistic things you really don’t need? Don’t become a lottery statistic. Learn to invest and allow your newfound money to generate more money!
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