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There is a lot of money to be won this week in two national lotteries.
The Powerball jackpot is $420 million announced for Wednesday night’s draw. The Mega Millions top prize is even more: $494 million for the next draw, scheduled for Friday night.
Of course, the chance of a single ticket matching all six numbers drawn in either game is tiny: 1 in 292 million for Powerball and 1 in 302 million for Mega Millions. And buying multiple tickets doesn’t move the needle much.
Still, it’s worth thinking about what you would do if you were to beat the odds and land such a bargain. It’s not as simple as cashing a check and moving on with your life.
“Understand that this could be a wonderful event, but people are caught off guard by its level of stress,” said Susan Bradley, certified financial planner and founder of Sudden Money Institute in Palm Beach Gardens, Florida.
If you’re lucky enough to win a life-changing sum of money, there are four key things to do right from the start to protect your winnings and alleviate some of that stress.
You don’t have to rush to the lottery headquarters right away. Depending on the state where you purchased the ticket, you have between 60 or 90 days and up to a year to claim your prize.
“Where to start? I think hitting the pause button,” said CFP Janet Stanzak, founder and partner of Financial Empowerment in Burnsville, Minnesota.
In other words, take a deep breath. The process of figuring out how to handle a huge amount of money can take several months, Stanzak said.
Also, share your deal information with as few people as possible. News has a way of traveling, and long-lost friends or family — or con artists — might show up at your doorstep.
“It’s hard, even for your inner circle of people, not to say anything,” Bradley said. “It’s an emotional experience and it’s hard not to let it slip away.”
It is important to keep your ticket in a safe place. Experts recommend taking a photo of yourself with the precious piece of paper, then storing it in a safe place, such as a safe.
It is also generally recommended to sign the back of the ticket as proof that it belongs to you. However, before doing so, make sure you know the rules for claiming your prize in the state where the ticket was purchased.
Some states allow you to remain completely anonymous. But if you purchased the ticket in a state that requires the winner’s name to be shared publicly, you may be able to avoid identifying yourself by claiming the prize on behalf of a trust or other legal entity.
Be aware that some pretty heavy financial decisions lie ahead of you, which is worth having a team of pros to help you out. This group should include an experienced lawyer, financial adviser, tax adviser and insurance adjuster.
To start, you’ll need to decide whether to accept your award as a reduced lump sum or as an annuity paid in annual installments over three decades. Either way, the IRS will take a cut before the money gets to you.
The cash option – which most winners choose – for this $420 million Powerball jackpot is $215.2 million. A 24% mandatory federal withholding tax would reduce this amount by approximately $51.6 million. For the $494 million Mega Millions jackpot, this would mean that $59.7 million would be withheld from the cash option of $248.7 million.
However, since the top marginal rate is 37%, winners should expect to owe significantly more at tax time. Additionally, state taxes are usually withheld or due, depending on where you live and where the ticket was purchased.