Powerball jackpot jumps to $625 million. Here's the tax bite if you win



Justin Sullivan | Getty Images

A customer buys Powerball tickets at Kavanagh Liquors on in San Lorenzo, California. 

The list of top 10 largest lottery jackpots has a new entry.

With no one hitting all six winning numbers in Powerball's Wednesday night drawing, the top prize has climbed to $625 million, making it the seventh-biggest jackpot in U.S. lottery history.

And while players daydream about what they'd do with a windfall of that size, they should remember that they wouldn't really end up with the advertised amount.

Top 10 U.S. lottery jackpots 1 $1.586 billion Jan. 13 2016 Powerball CA-FL-TN 2 $1.54 billion Oct. 23 2018 Mega Millions SC 3 $758.7 million Aug. 23 2017 Powerball MA 4 $687.8 million Oct. 27 2018 Powerball IA-NY 5 $656 million Mar. 30 2012 Mega Millions KS-IL-MD 6 $648 million Dec. 17 2013 Mega Millions CA-GA 7 $625 million ? Powerball ? 8 $590.5 million May 13 2018 Powerball FL 9 $587.5 million Nov. 28 2012 Powerball AZ-MO 10 $564.1 million Feb. 11 2015 Powerball NC-PR-TX

Whether the winner takes their prize as an annuity spread out over three decades or as an immediate reduced lump sum, lottery officials are required to withhold 24 percent for federal taxes.

However, the top federal tax rate of 37 percent means the winner would owe a lot more at tax time. And there also typically are state taxes due as well.

"The big impact on winnings is taxes," said certified financial planner Dan Routh, a wealth advisor at Exencial Wealth Advisors in Oklahoma City. "If you win, just realize how big the tax bill can be and make sure you're ready to handle it."

With the odds stacked against players hitting the jackpot — your chance is about 1 in 292 million — the Powerball jackpot has been growing since late December.

For Saturday night's drawing, the cash option — which most winners go with — is $380.6 million. The 24 percent federal withholding would reduce that amount by $91.3 million.

Assuming the winner had no reduction to their taxable income — such as large charitable contributions made from their winnings — another 13 percent, or $49.5 million, would be due to the IRS ($140.8 million in all).

More from Advisor Insight:
8 costly retirement mistakes to avoid
You have not taken these steps, and that's why you're broke
Advisors take extra steps to protect elder clients from fraud

That would leave the winner with $239.8 million before state taxes. That levy ranges from zero to more than 8 percent, depending on where the ticket was purchased and where the winner lives. In other words, the winner could end up paying more than 45 percent in taxes.

Given the sheer size of the jackpot, experts say it's important that the eventual winner assemble a team of experienced professionals to help navigate the windfall: an attorney, a tax advisor and a financial advisor.

"There's a big responsibility that goes with having such a large some of money," Routh said. "It would be important to surround yourself with a quality team that's working in your best interest."

Weekly advice on managing your money

Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.

Source Link

Articles You May Like

Hong Kong’s Chief Executive Is Disheartened, but No Successor Is in Sight
Many minorities avoid seeking credit due to generations of discrimination. Why that keeps them back
Executive's flight to PSA highlights Renault-Nissan alliance tensions
KKR buyout at Axel Springer clears minimum acceptance threshold
China’s Currency Weakens in a Potential Challenge to Trump