How to (responsibly) handle your lottery earnings

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Hanna Horvath, CFP®

Hanna Horvath, CFP®


Hanna Horvath is a CERTIFIED FINANCIAL PLANNER™ and managing editor for growth at Policygenius. She helps produce the Easy Money newsletter, and owns all growth initiatives for Easy Money. She recently passed her exam to become a CERTIFIED FINANCIAL PLANNER™ in November 2020.

Hanna's work has appeared in NBC News, Business Insider and Inc. Magazine. She is regularly quoted in top media outlets, including CNBC, Best Company and HerMoney. She has also appeared on the Money Moolala podcast and All's Fair podcast.

Prior to Policygenius, Hanna wrote for KNBC in Los Angeles and WNBC in New York. When she isn't writing, she's (often) running, (usually) cooking and (sometimes) doing photography.

Published March 5, 2019|3 min read

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Congratulations — you’ve won the lottery. Or, you are hoping to win the lottery. The Powerball jackpot is currently worth $381 million, and a winner will be drawn Wednesday.

If you happen to get lucky, you may wonder what to do with all that cash. While it may be tempting to spend it all in one place, it can quickly snowball into a mountain of debt.

So, how can you enjoy your newfound riches without going broke?

Make a plan

Before you get the money, Jim Shagawat, certified financial planner and president of Windfall Wealth Advisors, said you should look for a tax attorney or accountant to go through your expected winnings and develop a financial “game plan.”

“You have to develop a whole new mindset,” he said. “Having money is one thing, but knowing what to do with it is completely different.”

Also, Shagawat said to consider keeping quiet about your windfall. Winning the lottery can make you an easy target for scams

Here comes Uncle Sam

The worst part about winning the lottery? The ginormous tax bill. Lottery winnings are taxed as income. Your winnings will likely fall into the top tax income bracket, so the IRS will tax you 37%. (Here’s a breakdown of this year’s tax brackets.)

When you win, the IRS takes around a quarter of your earnings, and you owe the rest by April 15. Then, depending on where you live, there may be state and local taxes.

Once that’s over, you can decide how you want to receive the money. Dennis Nolte, certified financial planner and vice president of Seacoast Investment Services, said you can either get your winnings over 30 years in annual payments, or as a lump sum.

Though getting your winnings over the course of years may prevent you from blowing it all at once, Nolte said the current taxes on lottery winnings are low, so it makes more financial sense to take a lump sum. Once you have the money, you can work with your financial planner to invest it or spend it responsibly.

What should you spend the money on?

While you shouldn’t frivolously spend all the money, you can afford to splurge a little. (In fact, here’s how having a splurge fund makes money fun.) But before you head to the mall, consider investing in your financial future.

Put a portion of your winnings toward your retirement. Setting aside some money in an individual retirement account can have tax benefits and can ensure you’ll have a nest egg if something goes wrong. Learn more about setting up an IRA here. Consider investing in a safe, long-term investments that can earn you even more money over time, like a bond. Just make sure you speak to an investment professional beforehand.

Also, get rid of any debts you may have. As long as you aren’t millions of dollars in debt, your Powerball winnings can easily cover any account you have in the red.

Now, you can sit back, relax, and enjoy your life post-lottery win. But it's still important to live within your means. A budget can help you stay on track. Here’s an easy-to-use spreadsheet to get you started.

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Image: Alfred Gescheidt / Getty Images