Your Financial Future: What a Mega Millionaire should do
Observer-Reporter (Washington, PA)
This week Mega Millions has one of the biggest jackpots ever.
It is estimated to be valued around $1 billion if the annuity option is chosen. Most people elect to take the lump sum (about $600 million). If you beat the odds of about 302 million to 1 and win by yourself, the first person in line to collect will be Uncle Sam.
There is a mandatory withholding of 24%.
You will still owe more when you file your return since all taxpayers with income over $539,900 owe 39%. This will reduce your winnings by about $234,000,000. Pennsylvania also charges income tax on winnings, but even after this huge tax bite, you will still have much more than most people earn in a lifetime.
Many times, groups of co-workers go together to purchase pooled tickets that they plan to share if they win. This gives you more chances to win something. Of course, splitting with co-workers will reduce your total take. If you buy tickets this way, everyone should have a photo copy of all tickets the group owns. There have been court cases where someone claimed the winning was an individual purchase and not part of the group's holdings. This would likely end up in court.
If you win, the first thing you need to do is keep quiet.
Winners are swamped with requests from friends, relatives and people wanting help that they never knew before. Put together a team of a lawyer, accountant and financial planner. Many experts suggest signing the back of the ticket and making several copies to prove ownership if you are separated from your winning ticket.
Where you buy your winning ticket determines if you have to be named in public as the winner. In Pennsylvania, your identity will be revealed. If you bought the ticket in Ohio, you may be able to conceal your identity. Do not make a special trip across state lines just for this purpose, but if you are there, that is a big benefit. If you win, it might be a good idea to go away on a trip for a week or two to let the news die down.
Sometimes you can create a trust or family limited partnership to help protect your identity. People can still possibly identify you, but it takes more work. You need to make sure that you have an up-to-date estate plan because things can change quickly. Also, there cannot be any holes in your liability insurance because your odds of being sued will increase once people know you have deep pockets.
You will have to make a decision whether to take a lump sum payment or receive your prize over 30 payments. The figure announced as the prize is taking your winning over time. It is bigger because the undistributed money will be earning during those three decades.
Someone who is not good with money, and will spend everything might be better off not taking the lump sum. There have been a number of reported cases where winners won millions of dollars and were bankrupt a few years later.
If you can control spending and have a good financial team, you can often earn more by taking the reduced lump sum and investing. With this size of investments your asset allocation would include many things that a normal citizen does not need to consider.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, "Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility." If there is an area that you would like to see discussed in the column, send your suggestions to [email protected].