If you play the lottery regularly, you probably know the odd of winning are slim, but if you were to win, do you know how you would manage your winnings? Many times, hitting that big jackpot is just the beginning of your lottery experience. Depending on your choices you could either get a lump sum lottery payout or receive your winnings over the course of your lifetime. It you hit the magic numbers, what will you do?
Lottery Annuity versus Lump Sum Lottery Payout
One thing you may not realize is that regardless of the amount that you won on paper, the federal government immediately takes a 25% cut for taxes and, depending on your municipality, your state could slice off a little more as well. When you win the lottery you have two basic options, taking the an annuity which are payments over the course of several years, or getting a lump sum payout, a flat sum of cash. Depending on your situation, you might find one option more appealing than the other.
Lottery Annuity
By taking a lottery annuity you are insuring that you will get the maximum amount of your winnings, but the trade off is how long it will take. For example, if you were to win the Mega Millions prize, you would receive your lottery payments over the course of 30 years, with each years amount being increased by 5%. This length of time can be problematic if your time on this earth is limited. You would be left having to figure out inheritance procedures for your prize.
Lump Sum Lottery Payout
For those who may be in financial straits or who are not too long for this world, a lump sum payout might be better suited to your needs. If you choose to receive your winnings in large payouts you will have more money available sooner. This can be helpful to those who need large amounts of money for bills or large purchases. But getting your money now comes at a cost. By opting for the big payday, you drastically cut your winnings down because of tax liability. The government will basically get up to 54% of your winnings from a lump sum payout.
Even if your odds of winning the lottery are low, it could still be beneficial to think about what you would do if you won a large amount of money from either an annuity settlement, inheritance or any other legal action. By planning ahead you can make sure that your windfall is an enjoyable experience, not a huge headache.
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