Four Smart Moves to Make After Winning Powerball

Nov 22, 2022 | Blog, Uncategorized

Last week, lottery officials announced that a single winning Powerball ticket for over $2 billion was sold in Altadena, California. It was the largest ever Powerball lottery jackpot in the United States. Most people probably dream of winning that kind of money, but the reality is that managing it is far more difficult than it seems at first. Interestingly, tax attorneys in San Jose have learned that lottery winners are at a greater risk for bankruptcy within three to five years of hitting the jackpot than the average struggling American. These facts were found in an academic study published in 2011. For this reason, financial experts have the following recommendations for jackpot winners:

  1. Avoid Making Monetary Commitments the First Six Months

Kevin Brady, a certified financial planner (“CFP”), stated that recipients of large lottery jackpots should avoid making any monetary commitments to any person or organization until they have a chance to consult with a financial planner or a Bay Area tax attorney. In some states, a person can choose to remain anonymous, which is ultimately the best course of action, but since California does not have that option, the winner should avoid spending any of the money right out of the gate.

  1. Seek the Help of a Financial Expert

A Florida CFP, Marianela Collado, recommends hiring an entire team to assist with winnings of that amount, regardless of where the recipient lives or plans to live. All investment and spending options should be discussed with a qualified financial planner immediately, and this can even be done before the winning ticket is formally claimed. Hiring a business manager is also recommended, since “business opportunities” and other solicitations will be pitched to the winner on a regular basis.

  1. Don’t Overlook the Lump Sum Option

According to IRS tax attorneys, lottery winners typically have the option of taking a lump sum in lieu of an annuity payment. Dallas CFP Lora Huff believes that the lump sum is better, provided the winner seeks appropriate financial advice. Ultimately, however, when invested properly, a lump sum should earn more over time than the amount given by the lottery annuity payout. Nevertheless, everyone’s situation is different, and for this reason it is vital to consult a Bay Area tax attorney or other professional to discuss every option.

  1. Stay in Reality

Finally, lottery winners should make sure they do not overestimate their wealth. It is easy to overspend if it is unclear to a person how much they actually have after taxes. Bay Area tax attorneys state that if a lump sum is taken, winnings are automatically reduced to less than $1 billion. Additionally, 37 percent of the winning sum goes directly to federal income taxes. There are no state taxes in California for lottery winnings, but if the winner’s legal address was another state at the time the money was won, they may have to pay almost 9 percent in state taxes as well.

lottery ticket

In case of death, the winnings may be further reduced by estate taxes of up to 40 percent, and any heirs could discover that inheritance taxes may come into play, depending on where they live. Ultimately, these are all issues that should be discussed with tax attorneys in San Jose to ensure that the best possible decisions are reached and financial peril in the future avoided.