For 99% of lottery players, hitting the jackpot will remain nothing more than a dream and a hypothetical scenario. Nevertheless, countless people from all over the country have won figures totaling in the eight and nine digit ranges. For the lucky few who manage to defy the statistical odds, there comes the question of whether to accept the winnings in its entirety as a single lump sum or as an annuity paid out over many years. Both options have their pros and cons, and jackpot winners should consult with a financial expert to determine which choice is best for their personal situation.
Lump Sum Payment
You can elect to accept all the money at once. Those with experience and know a thing or two about investing often opt to take the lump sum payment. This allows them to immediately invest the money through a number of high-yield financial avenues, such as stocks, bonds, gold, commodities, or real estate.
Keep in mind, though, that there’s also a risk associated with a lump sum payment. With all that money sitting in your bank account, it can be tempting to buy that new mansion or car, or to take multiple lavish vacations. Even money in the millions can be spent relatively quickly if you are not wise with your finances.
There are potential enormous tax benefits by opting for a long-term payout. Depending on the jackpot amount, annuity payments may place you in a lower tax bracket. This ensures that you keep a bigger percentage of the earnings rather than having a large chunk of it go to state and federal taxes. Of course, with annuity payments, the money is paid out over a long period, which may leave you in a bind should you run into unexpected financial difficulties.
Selling Your Annuity
Depending on your state of residence, you may have a third option. This is the choice of selling your annuity for a lump sum payment. This is known as a structured settlement, and the practice is currently permitted in 28 states. The process requires court approval, and you can sell all or a portion of the annuity. In a sense, this allows you to reap the benefits of both lump sum and annuity payments.
Making an Informed Decision
Winning the lottery is a scenario most people can only dream of. Should you be the lucky few to reap such a great fortune, you will have a very important decision to make regarding your winnings. There is no right or wrong choice; just be sure that you get an accountant involved in order to make an informed and educated choice.