If this is your lucky day and you win the Powerball lottery, your initial celebration and excitement over having so much money to spend will be followed by a series of tough questions. Should I take the prize in a lump sum or receive annual payments? How can I find a financial expert I know I can trust? How much of the money will I have to pay in taxes? The jackpot is now more than $550 million.
Powerball winners have 60 days to decide whether to take the prize in a lump-sum cash payment or in 30 payments in a 29-year period, according to the New York Lottery Winners’ Handbook. Annual jackpot payments are graduated and increase in value each year.
Winners in New York receive their lump-sum or initial payments after their media announcement. Only five states allow Powerball winners to remain anonymous, and New York is not one of them, according to the Multi-State Lottery Association. The New York Lottery releases the winner’s name and city or town of residence, but not the full address.
The New York Lottery is required to withhold federal and state income taxes, and city income taxes if applicable. The withholdings may not satisfy the winner’s entire tax liability. The handbook notes that tax laws “are extremely complicated and are continually changing.”
The Lottery recommends winners seek professional advice in a number of areas, including financial planning, taxes, legal issues and investment. Winners should ask for references from the advisers and recommendations from people they know. They should be aware that they could “become the target of unscrupulous people looking to exploit your good fortune,” the booklet states.
This publication from the state Department of Taxation and Finance provides answers to frequently asked questions on New York tax responsibilities for lottery winners. Federal income tax is withheld from Lottery winnings if the winnings minus the wager are more than $5,000. Twenty-five percent of the proceeds are withheld.
The nonprofit National Endowment for Financial Education provides a number of recommendations for people who receive sudden windfalls of money, including to be careful about impulse spending. Estimates show that up to 70 percent of all people who suddenly receive large amounts of money will lose it within a few years.
The group recommends winners wait before making major decisions about life and money, such as selling property or changing careers. Winners should read books on sudden wealth, visit websites with information on financial planning and talk with advisers. If they don’t already have a trusted financial adviser, they should find one. They may want a team of advisers that includes a financial planner, an accountant and an estate-planning attorney.
The National Endowment for Financial Education cautions that receiving so much money all at once can stir up emotional issues and can take time to adjust to. Winners should think about people and organizations they want to help with their money. The organization cautions that people may get unexepected reactions from family and friends who hear about the windfall. They may ask for money or request that you make an investment or enter into a business venture.
Some resources the group recommends include the American Institute of Certified Public Accountants, the National Association of Family Wealth Counselors, the National Association of Personal Financial Advisors and the Sudden Money Institute.
(Journal News file photo, Nicks Convenience Store in Tappan.)