With the Mega Millions jackpot climbing following a weekend without a win, lotto fever is once again on the rise. This makes it even more crucial that you know what to do in the unlikely event that you overcome the odds and win.
With the Mega Millions jackpot climbing following a weekend without a win, lotto fever is once again on the rise. (Photo : by ANGELA WEISS/AFP via Getty Images)
The anticipated top Mega Millions prize for the drawing on Tuesday night is $875 million, making it the sixth-largest ever. Although your chances of winning the Mega Millions are 1 in 302.6 million, you should be ready to maintain your composure if you do. Financial advisors advise against posting about your victory on social media, even if you may want to shout it from the rooftops. Instead, you're better off keeping your mouth shut and not using your phone.
They argue that making such a large claim is likely to attract tax authorities, con artists, and friends and relatives who are asking for financial assistance.
Why You Should Keep It To Yourself
"No real lottery tells winners to put up their own money in order to collect a prize they have already won," Mega Millions warns. "They may contact you to tell you that you have won, or if they know you have won, 'the crooks usually try to get you to wire money for "taxes" or "fees," or they may try to get you to provide them with a bank account number, which they will then clean out."
No Mega Millions agent would ever phone, text, or email someone about winning a jackpot, so be wary of those who approach you out of the blue. If you win, you can choose to stay anonymous in some areas.
Owner of Azoury Financial in Troy, Michigan, Steve Azoury claims to have advised several lottery winners, one of whom, after winning $181 million, "said, 'If I didn't know you before, I don't want to know you now.'"
Azoury advises winners to prioritize hiring a tax attorney and a tax accountant immediately, followed by a financial adviser. These professionals will collaborate to develop a comprehensive plan tailored to the winner's financial situation. The plan will involve deciding between two payout options: an annuity option, which entails an initial annual payment followed by 29 annual payments, each 5% larger than the previous one, or a cash option, which is a one-time, lump-sum payment equivalent to the entire cash amount in the jackpot prize pool, which stands at $413.5 million for Tuesday's drawing.
Additionally, Azoury suggests including a "fall guy" in the plan. This individual or adviser will serve as a buffer, preventing the winner from providing loans to others and managing expectations by communicating that the funds are tied up in investments and not readily available for personal projects or assistance.
How Much Will You Bring Home?
That depends on how you choose to accept your money and how complicated the state rules are.
You'll probably be thrust into the highest federal tax bracket if you win the lotto. Your tax liability may be significantly impacted by the state in which you reside and the location where you purchased the winning ticket.
If you live in California and buy your ticket there, the federal tax rate is 37%. Fortunately for you, though, Steber notes that California does not tax lottery winnings.
However, if you live in California and decide to purchase a ticket while on vacation in Rhode Island, you will need to file a nonresident Rhode Island tax return for your jackpot and include your lottery earnings on your federal and California tax forms. In order to avoid paying taxes twice on the same income in two different jurisdictions, he advises you to claim a tax credit for the Rhode Island taxes on your California form.
Lottery winnings are not taxable in California. According to Jackson Hewitt, more states are:
