It only takes a few dollars to win, but it takes a lot of smarts to manage a billion dollar windfall.
For those playing Mega Millions for the chance to win Friday’s estimated $1.02 billion jackpot, hopefully that’s a problem they will soon have. Especially if they want to avoid the same pitfalls that other past lottery winners have encountered.
“There are so many lottery winners who have won a lot of money and end up losing it all,” said James Berman, licensed investment adviser and corporate finance instructor at NYU.
Berman says the first thing to do if you miraculously end up holding the winning Mega Millions ticket is pretty simple: do nothing. Even when the conventional advice is to make the money work.
“A lot of people will give the advice – don’t just sit there, do something with it. Put it to use. Make it work for you immediately, and I would give the opposite advice. That is, don’t just not to do anything. Stay there for a while,” he said.
Cashing in the winning ticket can wait while you take the time to find a lawyer and a tax professional, suggests Berman, but then you have some decisions to make. The first may be how to claim your winnings.
If possible, Berman said to do so anonymously.
“You want to do your best not to go more public than necessary,” he said.
New Jersey will keep winners anonymous if requested. However, New York and Connecticut will not.
Forty-five states plus Washington, DC participate in Mega Millions drawings. Find out which state hit the jackpot the most and which numbers seem to come up the most.
Another important decision concerns how the money comes: In a lump sum, or an annuity?
The website USAmega.com estimates that, after New York taxes, the annuity would be $17.8 million per year, or $535 million after 30 years of payments. The lump sum would be $314 million – but if it were to be invested at 4%, it would become $1 billion by 2052.
The real question about lump sum versus annuity: is it realistic to think that you would be disciplined enough with a lump sum worth hundreds of millions?
Someone at a convenience store in Staten Island guessed 5 of the 6 Mega Millions numbers were correct, but no one hit the jackpot. reports Myles Miller.
“If you choose a lump sum instead of an annuity, well, you better not be a gambler, because you’re going to lose that lump sum. And if you played the lottery, you might be a gambler,” said Berman. . “Then it would be better to take the annuity.”
Some may wonder which state claims the most lottery payout from a winner. According USAmega.comthat would be New York with an effective tax rate of 10.9% on lottery winnings.
On the other hand, states like California, Florida, and Texas do not tax lottery winnings at all.